How should you choose a Financial Advisor / Planner?
People generally get advice from a variety of sources namely colleagues, friends, family, banks, stockbrokers, chartered accountants, insurance agents, advisors, wealth managers, and planners.
Most people today end up taking advice from several different people and hence end up with so many unnecessary and irrelevant products.
The correct approach is to create a comprehensive written strategy that would cover every aspect of personal finance for you. In short, there is a pressing need to take a holistic view of your overall situation. There should be one person or a team who takes stock of your cash flows, assets, liabilities, liquidity needs and helps you firm up your financial goals.
A lot of agents, financial distributors and banks try to call themselves financial advisors or planners. They generously also use the term financial planning / wealth management as and when it pleases them. Consumers are naturally confused. So how does one evaluate a planner? Ask the following questions and you will have your answer.
First: How detailed and comprehensive was the data-gathering interview?
This is one of the most important steps in the financial planning process and will drive all the advice to be given. Was the data gathering comprehensive enough? Did the financial planner make notes of the information that you did not have and ask you to get back with this information? Did he take in information about you, your family, your aspirations, dreams, goals, income, expenses, cash flows, assets, liabilities, insurance, investments, tax situation, wills, powers of attorneys and information that might be relevant? Did he ask about your behaviour towards risks and how you react in bullish and bearish situations? Did he understand the mistakes that you have committed in the past and how were they committed?
A good financial planner should take anywhere between 3-5 hours including a social chat over 1 or 2 sessions to complete this data gathering process. He will then review the data collected and revert to the client for more clarifications to make sure he has understood the overall scenario well.
This first step itself is the single biggest clue.
Second: Look closely at how the planner discusses risks and returns with you.
Does he promises you the moon and tells you how good he is and that he has provided the highest returns?
No good financial planner in his sane mind will ever do so and this is the kind of person you should look at working with. Does he take you through a proper risk profiling exercise, and tell you that the long-term return of the stock market is around 12-15 percent and therefore one should not believe theories of 30 percent returns?
Third: Don’t look at the bank brand and opt blindly for advice, as the bank is not going to advise, it is the advisor that does. Most relationship managers in banks are primarily sales people always on the lookout for selling more products to clients. They frequently change employers so a relationship manager at Bank A can tomorrow be at Bank B and then at Bank C.
Fourth: Does the financial planner take you through estate planning matters, retirement planning, different offerings, as might be suitable to you, and any other issues? He might not deal directly in any of those things but most good planners will at least give you an overview of what you need and refer you to someone competent.
Most of the private banks and distributors have a well-deserved reputation for first selling life insurance as investments and churning portfolios under the garb of financial planning.
“Would you go to a chef for a haircut, or a barber for food advice?” The problem today in the financial services industry is that you don’t know who the barber or chef is because everyone uses the same title or name. Make sure you understand the terms financial planning, wealth management and wealth manager, and that you are not just getting a lemon in the name of financial planning.
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