If you realize that the medicines your doctor prescribed for you didn’t really work for you, what would you do? See another doctor. Just as you assess the services of a professional, such as a doctor, you need to run a check on the services of a financial planner, too.
Hiring a planner is not the end of your financial troubles. You need to monitor his services and attitude regularly to make sure you are with a person who will help make your hard-earned money grow. Here are some broad indicators that will help you assess the capabilities and attitude of your financial planner. While some of this would surface in the first few months of the plan, you may realize some others only later. But whenever you do, it would be time to look for another planner.
To be able to plan your finances, the planner would have to start with asking you a set of questions. The nature of these questions in itself is an indicator about the worth of a planner.
How much can you invest? If the planner becomes too curious about your investment corpus when you are still fairly new to the plan, you should take note of it. He may turn out to be just another sales guy who wants to know how your present investments can be churned into new ones, where he can earn commissions.
“This person may just want to know how much you can spare. Irrespective of what he calls himself, he is a product salesman. He will try to pitch a product the moment he knows how much one can spare,” says Suresh Sadagopan, certified financial planner, Ladder7 Financial Advisories, a financial planning firm.
However, don’t confuse it with the planner asking you about your earnings. Without knowing how much you earn, it is difficult to formulate a plan. Says Gaurav Mashruwala, a Mumbai-based financial planner, “To plan someone’s finance, one needs to know how much the client is ready to set apart. If the question crops up after the planning process started quite some time ago, I don’t see any problem with the question.”
Seconds Sadagopan, “We are professionals, same as doctors. Similarly, as for a proper diagnosis you need to tell the doctor everything about your health, we also need to know the financial health of the client to provide most appropriate remedy.”
Which products do you like? Even though the planner needs to find out your comfort level with certain product categories, such as debt or equity, it is not right to ask the customer about specific products.
Says B. Srinivasan, a Bangalore-based certified financial planner: “Whether you need a certain type of product or not is my duty to find out. By asking such a question, I won’t be doing a planner’s job.”
So if a risk averse individual likes fixed deposits, the planner should not blindly follow his wish. Rather he should be able to make him aware of options within the fixed-return category of instruments.
However, sometimes planners pose this question to make sure you are not stuck with the wrong product. “For a salaried person who has around 27% of his gross income in fixed-return products through provident fund and superannuation, another debt product does not make much sense. So I would rather recommend them equity products instead considering their age bracket,” adds Srinivasan.
If the planner is in a hurry to get you invested in a particular product and does not show interest in overall planning, he may finally turn out to be a relationship manager. They have targets to meet and “do not have the luxury to meet the same person again and again”, says Sadagopan. Such relationship managers are taught to sell and maximize the revenue for the time spent with clients.
Says Mashruwala: “A good planner would look at four aspects of your finances—income, expense, assets and liabilities—in isolation before embarking on the way to formulate a sound financial plan. However, an ordinary adviser would just look at your income and expenses and start suggesting a product. Remember that a car can’t move without the four wheels rolling in a synchronized manner.”
Also, watch out if he starts talking about the benefits of specific categories. He may pull out charts and other data to convince you but behind all the papers may be huge commissions he is thinking of.
Beware of boasts
“If the planner extols the virtues of his companies and products they sell or is trying to tell you who else is his client, beware,” says Sadagopan.
Tall claims about a never-ending clientele and how they became super rich should immediately put you on the backfoot. If someone “promises an unrealistic return which you have never heard of is surely a cause of concern,” says Surya Bhatia, founder consultant, Asset Managers, a New Delhi-based financial planning firm. The recent Citibank scandal, where the bank employee promised customers astronomical returns, is a good example.
Also, if a planner starts talking about how good he is and what he has done for his clients, probably he is an upstart, who is insecure and wants to convince a client that he is the best.
Frequent churning of your portfolio would justify suspicion. In such cases, the planner may not be an agent for a particular institution. For all you know, he may be trying to earn commissions from you by churning your portfolio regularly. His convincing strategy: changing market conditions. However, a plan really works only if it’s followed over a long term, unless there is something drastic.
“A bad planner or an ordinary adviser would look at market conditions and suggest you new products. That surely is a red flag. He would completely ignore your condition in this case,” says Mashruwala.
Frequent churning may also mean that the planner is not sure of the products he is advising due to inadequate knowledge.
However, do remember that to a certain extent churning is justified. But it depends on case to case. For instance, if a product was offered to you when it was doing well, but an unforeseen situation made it unviable after a few years. Says Bhatia: “Sometimes there is a very thin line between churning and rebalancing. I agree that by churning frequently, the planner does not allow the investment to percolate as it takes some time for an investment to show results. However, he may do so in cases such as the change of fund manager on whom he had faith or change in the objective of the fund. These could be the two main conceptual reasons why a planner may churn an investment quickly.”
What to do
Reasoning is an important weapon in your armoury. If the planner is able to reason out his decisions and suggestions, it makes sense to rely on him. But in doing so, apply your mind, too, to make sure the reasons are sound enough. “Someone may have had a bad experience of investing in, say, mutual funds and so he would not be comfortable investing in them again. A planner then needs to justify his decision and educate the client about the product category,” says Lovaii Navlakhi, MD and chief financial planner, International Money Matters, a financial planning and investment advisory firm.
Your planner can play a big role in making you understand the nuances of a particular product and help you take prudent financial decisions. “Eventually, it is about the comfort factor. Whether you are comfortable with the investments or not is essential,” says Bhatia.
It’s your hard-earned money, so make sure it’s in the right hands.