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Jayalakshmi:

October is World Financial Planning Month. To us, the benefits of having a financial plan and following a methodical approach to wealth creation are obvious. Many still believe that working with a professional financial planner isn’t worth it. In this special episode of Kairos, we’ll look at some essential questions to ask before choosing your financial planner.

Today, people have access to so much information, research, financial tools, and recommendations. A quick search online can give you access to retirement calculators, fund recommendations, and so much more. To address the elephant in the room, what difference does a financial planner make?

 

Samyuktha:

This is one of my favourite questions to answer. I’m not going to get into the information vs misinformation debate. So, let’s assume that someone has access to the best resources for free. I would argue that they still need a financial planner and I’ll do this by giving you some food for thought:

  1. Is financial planning just projections, calculations, and product selection? Or is it also decision-making?
  2. How much objective thought clarity can someone have when it comes to their finances?
  3. Are financial decisions made in isolation or do they have a ripple effect?

Here’s an example to work with. Let’s say someone is eager to buy a house and they want to follow a DIY approach instead of a professional one to financial planning. Buying a house is more than just down-payment vs loan calculations. It’s also about when you can become debt-free. Whether an EMI is affordable. And the trade-offs. Behavioural economics shows that we tend to act irrationally when it comes to our own money. So, an objective outsider can improve the quality of decision-making.

Most decisions can’t be made in isolation. A good financial plan ties all these variables together. That’s hard work and it doesn’t show up in calculators or investment recommendations. Even small decisions could have a larger impact.

 

Jayalakshmi:

Each financial plan will contain elements of tax planning, risk management, investment planning, etc. It seems like a pretty set process. So, don’t all financial planners basically do the same thing? And if that’s the case wouldn’t the best financial plan be the most affordable one?

 

Samyuktha:

In some ways you’re right, but there’s more beneath the surface. And we can dig deeper with these questions:

  1. What is your approach to financial planning?
  2. What are your qualifications?
  3. How satisfied are your clients after service delivery?

Financial planners work with the same concepts, but approaches can be very different. Let me give you an example from our own team. In 2019, during the wise advice competition, we submitted two solutions to the same financial planning problem. Those solutions were like chalk and cheese. One was prescriptive, it assumed that the goals needed to be met and the clients were willing to stretch to meet them. So, it laid out a clear action plan on how to achieve those goals and what compromises had to be made. The other one was descriptive. Instead of providing one solution, it offered insights into the advantages and disadvantages of choosing different paths. The descriptive solution won the competition. But for some people, a prescriptive approach might work better.

A Certified Financial Planner is different from a financial planner. CFP professionals are held to more rigorous standards. They have a technical qualification, work experience, adhere to a code of conduct, and are expected to continuously update themselves.  You can locate a CFP professional near you by visiting the FPSB India website. Selecting a dedicated certified professional can only be to your advantage.

Measure the fairness of a fee with client satisfaction rather than the amount.

 

Jayalakshmi:

Evidently, research and homework are crucial. Let’s talk more about fees and compensation. People masquerading as advisers sell investment products that lack transparency. Investors end up feeling cheated and may prefer to choose a DIY approach after this experience. What can investors do to safeguard themselves?

 

Samyuktha:

Interesting question – people find out that they’re victims of misselling only much later.

There is only one question to ask here: How is the adviser compensated?

Broadly speaking, compensation could be fee-only (a flat fee based on the scope of work), fee-based (a % fee based on the AUA), or commission-based. Eliminate conflicts of interest by asking for a break-up of fees and commissions.

We work in a fiduciary capacity – this means we’re always looking out for what’s best for our clients. One of the ways we achieve this is by ensuring that our financial plans are free from any product influences. No recommendations and no pushes. We leave it to investors to decide what’s in their interest and whether they want our advice on products.

 

Jayalakshmi:

Quick follow on question – when does the DIY model work? And when should you choose professional help?

 

Samyuktha:

You can choose the DIY model if you are confident about these 3 things:

  1. Navigating financial markets on your own
  2. Cultivating the right investment behaviour and habits
  3. Dedicating additional time to your financial needs

To choose an adviser, you can find referrals from your network or search online. A smart checklist:

  1. What do their clients think about them? Google and Social media reviews/ direct referrals.
  2. Do they have a website?
  3. How do their employees’ LinkedIn profiles measure?
  4. Do you have common connections?

 

Jayalakshmi:

That’s a thoughtful approach. However, someone could have the best reviews and recommendations, but they may not be the best adviser for me. Why does this discrepancy exist?

 

Samyuktha:

Reviews reflect competency and reputation. Trust and comfort are two key intuitive factors. A sense of curiosity could help assess where you stand. Some questions to reflect on are:

  1. Do you feel comfortable talking to your financial planner?
  2. Are they listening to you or talking at you?
  3. Can you imagine a long-term partnership?

Additionally, there are some questions you should ask your potential financial planner too. This includes:

  1. What is their focus client segment?
  2. What kinds of clients have they worked with before?
  3. Who is their ideal client?
  4. Do they have a sample financial plan or related material?
  5. How do they maintain confidentiality?

The first question gives you insight into their area of expertise, the second into their experience, and the third into their growth. If you fit the profile of their ideal client or focus segment, it’s a perfect match. You can be assured of the best service. A sample plan is not essential, but it can help with decision making. Ideally, you want to work with the same financial planner or firm for years together. Commit when you feel comfortable and can envision something long-term.

 

Jayalakshmi:

Sometimes, people don’t stick with planning because it doesn’t live up to their expectations. How can someone avoid disappointment during the financial planning engagement?

 

Samyuktha:

That’s a pretty accurate observation. Questions to ask to avoid disappointment include:

  1. How long is the engagement? This can be either one-time or timebound. In our case, we work with people over a year.
  2. What support will you receive before, during, and after your financial plan is created? Most of the client’s work is after the plan is made – so having adequate support in the 6-12 months after a plan is created is essential. Lack of support during this period can make someone feel like the plan wasn’t worth it.
  3. What happens after service delivery? A plan is a step in the right direction but it’s not the end of everything. Dividing the responsibilities upfront helps.
  4. How often will your planner communicate with you? Another source of disappointment could be infrequent or delayed communication. Our approach is proactive – if there are any changes or updates, we reach out and inform our clients of the opportunities and impacts. We also curate content like Kairos that we share regularly.

 

Jayalakshmi:

Thank you for all the insights. I’m quite sure this of great help to anyone who wants to choose a Financial planner. There’s a lot to take away from this conversation. Although the task might be daunting, the whole exercise will be worthwhile! Thank you for listening in – give us a thumbs up if you’d like to see more videos like this one. Drop your questions in the comments section and we’ll get to them in our next episode.

 

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