Last Updated on October 8, 2023 at 1:48 pm
When I announced the launch of Fee-only India, a coming together of SEBI registered fee-only financial planners to help clients and each other, Alok Singh, made this interesting suggestion: “It’s a good initiative to bring fee-only FPs under one roof. Would it possible to come up with a post describing as to what factor/points one should consider while hiring a fee-only planner? There are many fee-only FP and people might be finding it difficult to choose one. Even after hiring one, many times doubt arises whether it was a good decision, once we refer to his/her advice and what we have learnt over a period of time (this happened with me when the advice was going southward from what I’ve learnt, but still I am following advise)”.
So I discuss Alok’s point as well a few other related issues in this post. Before that, an announcement:
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First some basics. A fee-based financial planner earns from creating a financial plan from and also get commissions from the suggested products. A fee-only financial planner – a true fee-only planner – works only for you and suggests commission-free products.
Not all fee-only planners work this way. Many of them get commissions indirectly via friends and relatives after referring their clients to them. There are only a few “true” fee-only planners in India. I have been maintaining a list of such planners for the last 3 years. Most of the planners from the list met recently to launch Fee-only India: the launch of a movement to serve investors and advisors.
Considering the steady stream of clients they get (one path is from freefincal + FB group Asan Ideas for Wealth -their words, not mine), I think individuals confident to earn a living this way, will do so.
Now for general pointers regarding financial advisors (in general, not fee-only). Many from the financial services industry compare themselves with doctors. This is beyond stupid and investors should run away from anyone who does this.
The financial planning process has a duration of years to decades. Creating the basic financial plan – for those who do not know, here is an example – is about 1% of the journey. The rest 99% is reviewing the plan at least once a year, making course corrections to the portfolio and try to achieve as much of the required corpus as possible while minimising risk.
When we go to a (competent) doctor, the time it takes for the diagnosis, prognosis, to start of treatment is at best weeks. And within a reasonable time frame (months), we – the patient – will know if the treatment is “working” or not.
Even after consulting a financial planner (any kind) for years, you may not have any idea if a plan is suitable or not. Three things are possible.
- You trust the planner, do as told and hope for the best.
Learn more about the money management process and learn to appreciate your progress (if any) and continue to work with the planner or end the relationship
3. Get confused with recommendations in the media or other sites (say freefincal) and worry if you have done the right thing or not.
This brings us to an important attribute of the fee-only financial planner. The person must encourage us to learn more about the financial planning process. That is the person should be pro-DIY*. Even if they are not, we ought to be!
This way, we do not have blind trust and learn how to evaluate the services of a financial planner.
- This does not mean we question every recommendation they make and demand justifications. Like a mutual fund, we should cut them slack for a few years and then learn to evaluate progress independently.
Second opinions do not work here!
It is amusing to note when people seek second medical opinions. If the first opinion was, “this can be treated without surgery”, how many of us will seek a second opinion to find out if surgery is really necessary?!
We seek second opinions only when uncomfortable advice is provided. However, the first and second opinion between two honest, competent doctors practising the same form of medicine will not vary too much. Because treatment is based on categorising symptoms into clear bins.
Financial advisory does not work that way. Two ethical financial planners with same qualifications and say, from same schools of thought will often give very different advice. For example, if you ask the nine planners from Fee-only India to suggest products for a particular investor portfolio, each of them is likely to be different.
If you cannot accept this reality, do not engage a financial planner. This is why you should learn to evaluate progress (which will take less than 30 minutes for those with clear financial goals) on your own. This is true for people suffering from incurable diseases. In a few years, they get to know enough to evaluate a doctors advice.
Hang on, do I hear you go, “If I should evaluate my progress with a financial planner on my own, why should I go to them in the first place?!”. Well, you don’t have to, but then again which responsible hirer does not keep an eye on the work of a hiree?
Unlike a doctor, where we can easily get references there is no meaningful way to evaluate how good or a bad a financial planner is, before we hire them. We must learn to do so only afterwards – Let’s Face It: Everyone Needs Do-it-Yourself Skills!
Ashal Jauhari made an important observation – many clients who prefer fee-only financial planners have some “sense” of what a financial plan is, if not a DIY investor looking for validation as Vikram Krishnamoorthy pointed out recently: What is the real purpose of a Financial Plan?
So many of them would be looking for a person who is willing to talk like as an equal rather than put on airs and call themselves a “financial coach” or some such crap.
It is not important for the fee-only planner to be in your city. A phone call should be enough for you judge if the voice at the other end is friendly enough to work with.
The things to consider before hiring a planner (assuming you are thinking about hiring one) depends on your money management IQ + inclination.
If you are are a total noob (which is fine – ignorance is not a crime, only confidence based on half-baked knowledge is), then much of your decision is based on trust and comfort level. You will have to take a chance and make a choice. You can consider feedback from a fellow noob who hired a fee-only planner.
You can consider the experience of the planner in addition. Not in financial services, but a pure fee-only planner – longer the better. The fee is a problem as it can range from 5K to 25K.
The fee is a problem as it can range from 5K to 25K. A higher from someone who has been practising as a fee-only planner for a few year is quite acceptable. You will have to take a quick call and start working with one.
If you are a DIY investor with interest in money matters, but looking for a professional to verify your strategy, then a direct question should be asked: “how will you manage my portfolio so that I can achieve my goals”. Ask for details and hire one whom you are impressed with. Of course, a newbie can also ask this question, but they should be in a position to appreciate the answer. In this case, only feedback from an “experienced client” will be relevant. Finding one will be tough.
Please note that a financial planner cannot guarantee anything. They are trained to manage money and all we can do is to expect them to do so to the best of their ability. If you ask silly questions (in their opinion!) or ask them too many questions, they would prefer not to have you as a client.The idea should be to ask relevant questions – meaning, less is more.
NOTE: The above is only for those looking to hire a planner from Fee-Only India
If you wish to hire one in general, the following are the basic requirements before considering the above:
- Should be registered with SEBI as an investment advisor – individual registration. Not corporate, not LLC, not anything else. Stay away from them.
- Tell them straight away that you will not invest “via them”, “through them”, “with a friend” etc. and insist on commission-free products – direct mutual funds, insurance obtained online. If they provide stock advisory, choose your own broker.
- Hire one whose fee is flat and not dependent on your AUM. All planners in my list now are flat-fee.
- Find out their experience. Many will say “20Y in the financial services” or some such thing. Ignore that and ask their experience as a fee-only financial planner and how many clients they have worked with.
Remember that financial planners are also students of personal finance. We should keep them on their toes with relevant and reasonable expectations. After all, who money is it anyway?!
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Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
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