How do you choose a financial planner who suits your needs?

Are you saving enough to fund your first car or children’s higher education or your retirement or even the international holiday you always wanted to take? Are the products you have chosen to put your hard-earned money in suitable for your respective financial goals? Or in the anxiety of having too little at the end of the road, you are saving too much, at the cost of your present lifestyle? There seems to be no clear answer to these and similar questions related to your money life because there is no one-size-fits-all solution. A professional financial planner may be able to answer all these questions and more and help you navigate your finances keeping your particular circumstances and life goals in mind.

But choosing the right professional is not as simple as it sounds. To start with, you would want to be absolutely sure that you need a financial planner. If you have just started working, all you may need is a little guidance to start on the savings path, but if you are in the middle of your career and have solid long-term goals, you may need to take a holistic look at your income, assets and liabilities. Moreover, the market is flooded with different kind of advisors—there are financial planners, independent financial advisors, agents and distributors. Your choice will largely depend on the breadth of services you seek from a professional and the money you want to shell out.

Do you need a planner?

Yes, said Ranjeet S. Mudholkar, vice-chairman and CEO, FPSB India, a professional certification body for certified financial planners. “What the financial planner does will be like a pathological test for you. You might be in perfect health, but still a doctor might order a series of tests to ensure that you are in perfect health. Even if you feel perfectly fine, the tests are required nonetheless,” he said.

But there are some who believe that not everyone needs a financial plan. Shyam Sunder, managing director, PeakAlpha Investment Services Pvt. Ltd, said that sometimes people just need a little bit of guidance to start them on the right path. “Financial planning is like a sledge hammer. If you only have a small nail to hit, it might be too powerful,” he said.

If you have just started working, or have no dependants or liabilities or your life is not complex enough, you may not need a full financial planner. At that stage, putting in place a few basic things may sort you out. Similarly, after retirement, when you have achieved most of your financial goals and just need to protect your assets to get regular income, small professional interventions may be enough for you. “But apart from these two sets of people, for the other 80% of the demographic, financial planning is highly recommended,” said Sunder.

Though experts stress on the need for a financial plan, it should never be done with the sole purpose of maximising returns. “It should be for optimising investments and avoiding mistakes especially in the initial phase of one’s career. Even if we invest ₹1.5 lakh a year, if done in the right way, it could make a huge difference when compared to making the same investment in inappropriate products,” said Melvin Joseph, a Sebi-registered investment adviser and founder of Finvin Financial Planners.

Planners can also advise you on the suitability of a product. For instance, a lot of people in the middle of their careers approach financial planners with investments in products that don’t suit their life stage. “This happens with a lot of people and they are losing huge amount of money due to that,” said Suresh Sadagopan, founder, Ladder7 Financial Advisories.

A good financial planner will try to ensure that the portfolio is appropriate for you, based on who you are, your life stage and what you want to achieve. It’s also possible that a planner tells you to reduce the risk in your portfolio, or that you are saving too much and can loosen up your present money life a bit.

How do you choose one?

A few years ago, Prashant Dhamale, 27, an assistant professor of statistics at NMIMS University in Navi Mumbai, attended a couple of financial planning workshops. He was exploring the idea of hiring a financial planner for himself and was puzzled that the services being offered after the workshop like planning and product recommendation were free of cost. “I began looking for an answer to how this was possible. I realised that one of the workshops was organised by a distributor of a mutual fund company and the other was by a financial advisor who would earn a commission from the products that I would buy,” he said.

He set out to find out the commissions that an insurance and mutual fund distributor could be earning and arrived at the conclusion that he would be better off with a fee-only planner, who would only charge for the advice and not earn product commissions. “I did some calculations and realised that the commission outgo over the years would be much higher if I went with someone who is earning commissions on my investments. Also, I wanted the advice to be free of any influence from a company,” he said.

Before you avail the services of a financial planner, it is important to understand their broad business model. As Prashant discovered, there are fee-only planners who charge only for their advice and there are fee-based planners who would also earn a commission out of the products that their clients purchase based on their advice. “As long as there is transparency and the consumer knows how the advisor or distributor is getting compensated and to what level, and the pros and cons of that, I would say it is perfectly fine,” said Sadique Neelgund, founder of Network FP, a knowledge platform for financial advisors.

How much do you pay?

Though Prashant made his decision to hire a financial planner, there was another aspect to consider: the fee to be paid to the financial planner. After some research, he was surprised to find out that there is a wide range of fees that a financial planner could charge.

The fee of a financial planner is based on their credentials and experience, along with the number or scope of services they offer and the market that they operate in.

Neelgund said that there are financial planners who charge anywhere between ₹5,000 and ₹1 lakh per annum. “While quoting a fee, a professional is clear about how much time will he be spending on the client and what is the value of that time and also that they do not want every client,” he said. Some planners, depending on their experience level, maintain a certain level of fees even if it means limited clients, said Mudholkar. The services could range from only suggesting investments for tax saving to regular monitoring along with periodic reports on how those investments are performing. A detailed financial plan will also talk about your assets, liabilities and restructuring required from time to time not just vis-a-vis your investments but also restructuring of your loans.

Under the fee-only model, some planners charge a flat fee, while others charge a percentage of the assets under advice, which is your investment corpus. Here you must understand that if someone agrees to pay 1% of their assets under advice as a fee, this would look very comfortable at the start of their investment journey when the corpus is small. “But as their investment corpus grows bigger over the years, the 1% of the corpus will look bigger. So suitability of a planner also depends on an individual’s comfort level with the planner,” Neelgund said.

The final plunge

It’s not easy to entrust your savings to someone else. Narrow down on a few names through references from people you trust. “It has become easy to find about the skills of a planner through some research online, but some good planners take clients only through references,” Mudholkar said.

It is also important to understand the planner’s way of functioning. Sadagopan said sometimes there is a complete disconnect between what a planner does and what a client wants. “A lot of people come to us directly to only get advice on i nvestments. But we have to turn them down as we reach the investment advice level only after completely understanding the position of the individual and making a financial plan. We want to engage only after fully understanding their position,” he said.

Just like investments, there is no one-size-fits-all solution when it comes to planners. Choose the one who suits your needs.