Should you hire a financial planner or do it yourself
4 min read 02 May 2011, 01:15 AM ISTShould you hire a financial planner or do it yourself
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Be it exercising, dieting, curing simple health problems, building a house, tax filing or money management, there are two ways of getting them done—hire a professional for guidance or do it yourself. In each case, the decision to hire a professional is based on many factors varying for every individual. For example, if you are building a house on a plot, you may decide to hire an architect based on the size of the project, the kind of interiors you want and your budget. Else, you may simply brief a local contractor and supervise the construction yourself.
Financial planning is no rocket science, it is a combination of simple financial strategies, few calculations and, most importantly, discipline. You may not have a written plan and a second opinion by a certified financial planner (CFP), but can still do fine doing it yourself if the following five factors are in your favour and you are disciplined and self-motivated to take charge of your money.
Time: You have to commit “time" if you want to manage money successfully. You will first need to start by educating yourself with personal finance matters and products. The best way to do this is by reading money magazines or money sections of your daily newspaper. You may also spend time watching television or surf the Internet. There is too much information floating around, you need to get used to terminology and products on insurance, investments, banking and taxation.
You will also need “time" to understand your needs, set financial goals, learn to use financial calculators (most of them are available on the Internet), compare products, take a decision and execute it. Getting a grip over your money is a continuous affair and doesn’t happen overnight; it will take at least two-three years. Spending 6-9 hours a month over weekends should serve the purpose.
If you are not able to make this commitment, it’s a good idea to hire a financial planner who will do the handholding, advise and maybe even execute the plan. Even in this case you will have to spend 2-3 hours a month in meeting the planner, understanding the plan, executing and reviewing the plan.
Affordability: Hiring an experienced and professional financial planner costs money. In India currently, CFPs charge anywhere between ₹ 10,000 and ₹ 30,000 to make a plan, execute and monitor it. Its no point having a plan done from self-proclaimed planners who are actually insurance agents or mutual fund distributors doing it for free and in the end recommending the products they want to sell.
"Willingness to pay" is best left to you, but “ability to pay" can be quantified to some extent. You can use this as a benchmark for deciding whether to hire a CFP or do it yourself. It’s a simple trade-off—you pay fee to save your time, efforts and get professional advice, but let this not be the only deciding factor.
Availability: This may be a non-factor after some years, but as of now it is huge factor. Currently, there are at least 1,200 CFPs in India, out which not more than 200 are practising. And even these are seen in bigger metros. With growth in demand from consumers, this situation is changing fast. So if a qualified and practising CFP is available in your city and is offering the services you require, you may think of hiring one. Also, check the background, fee structure and references, among other factors, before hiring one. It’s better to do it yourself if the planner’s offering doesn’t suit your requirement.
Knowledge: There are a number of questions which you should be able to answer on your own. How much corpus do I need for a comfortable retirement? What are the various tax benefits available? Am I saving enough or spending too much? Should I be taking a home on loan or is it better to live on rent for some more time? How to invest in equity markets? What will be the impact of inflation on my finances? You should also be able to understand the present and future values of money.
This knowledge is currently available in newspapers, television and the web. So it’s not difficult to find the answers to these questions. You just need to take time out from your busy schedule and have an inclination to go through it.
Complications: Finally, the decision can depend on the complications in your financial affairs. Is your income from a single source or multiple sources such as double salary, rent and investments. How is your current portfolio spread out—if you have been investing in mutual funds, stocks and insurance policies on an ad-hoc basis, chances are your portfolio is widely scattered and needs to be consolidated. If you are in such a situation a professional can give you a holistic view and help bring harmony in your investments and map them to future goals. If things are simple, take charge yourself.
After evaluating all the above factors, you may decide and try to do it yourself or seek a planner’s help. Alternatively, you may try yourself for some time before turning to external help. But start somewhere and take the first step towards having a plan in place.
Sadique Neelgund is a certified financial planner and founder, NetworkFP.com
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