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:
Feedspot is a RSS reader. The FeedSpot team has chosen freefincal as the 5th among the “Top 25 Mutual Fund Blogs and Websites for Investors”. Thank you, Anuj Agarwal, founder, Feedspot for the recognition. Without the support of readers, no recognition is possible. Thank you.
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?!
Use this form to ask Questions or reg. the robo template ONLY (For comments/opinions, use the form at the bottom)
And I will respond to them in the next few days. I welcome tough questions. Please do not ask for investment advice. Before asking, please search the site if the issue has already been discussed. Thank you. PLEASE DO NOT POST COMMENTS WITH THIS FORM it is for questions only.
GameChanger– Forget Startups, Join Corporate & Live The Rich Life You Want
My second book, Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you want, co-authored with Pranav Surya is now available at Amazon as paperback (₹ 199) and Kindle (free in unlimited or ₹ 99 – you could read with their free app on PC/tablet/mobile, no Kindle necessary).
It is a book that tells you how to travel anywhere on a budget (eg. to Europe at 50% lower costs) and specific investment advice for young earners.
The ultimate guide to travel by Pranav Surya is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for ₹199 (you will be emailed the pdf after payment)
You Can Be Rich Too with Goal-Based Investing
My first book with PV Subramanyam helps you ask the risk questions about money, seek simple solutions and find your own personalised answers with nine online calculator modules.
The book is available at:
Amazon Hardcover Rs. 271. 32% OFF
Infibeam Now just Rs. 270 32% OFF. If you use a mobikwik wallet, and purchase via infibeam, you can get up to 100% cashback!!
Flipkart Rs. 279. 30% off
Kindle at Amazon.in (Rs.271) Read with free app
Google PlayRs. 271 Read on your PC/Tablet/Mobile
Now in Hindi!
Order the Hindi version via this link
Connect with us on social media
- Twitter @freefincal
- Subscribe to our Youtube Videos
- Posts feed via: Feedburner
- We are also on Google Plus and Pinterest
Do check out my books
Get it now. The Kindle edition is only Rs. 199.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You WantMy second book is now only Rs 199 (Kindle Rs. 99) Get it or gift it to a young earner
The ultimate guide to travel by Pranav SuryaThis is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for ₹199 (instant download)
Free Apps for your Android PhoneAll calculators from our book, “You can be Rich Too” are now available on Google Play!
Install Financial Freedom App! (Google Play Store)
Install Freefincal Retirement Planner App! (Google Play Store)
Find out if you have enough to say "FU" to your employer (Google Play Store)