Looking for a fee-only financial planner? Here is a list of questions to ask before you sign up

Published: October 9, 2018 at 12:08 pm

If you are looking for someone to advise you on money management, then you should sign up with a fee-only financial planner – an investment advisor registered with SEBI – who does not get commissions from any agency and works only for you. Hundreds of readers have engaged the advisors from the freefincal List of Fee-only Financial Planners in India. Here is a list of questions to ask a fee-only financial planner before engagement.

This is a guest post by SEBI registered fee-only investment advisor, Swapnil Kendhe. His website is Vivektaru. Swapnil’s approach to risk and returns is similar to mine and I love the fact that he pushes himself constantly to become better. The questions you will see below are a reflection of his effort.

What is the reason for this post? Clients have two problems when it comes choosing fee-only financial advisors. (1) They do not understand what a financial planner does and does not. This was addressed here: What is the real purpose of a Financial Plan? and here Seven ways a fee-only financial planner will NOT help you!

(2) They do understand that financial planning is a two-way street. While the advisor will tell the client how to manage your money, the client should also learn constantly and push the advisor with some tough questions. It is better if some of these tough questions are asked before engagement and hence this post.

Also many worry if a face to face interaction is necessary. If you want to ask tough questions, sometimes it is better to do so over email!! Anyway Here is why you can safely consult a fee-only advisor living in another city

Why did you ask a fee-only advisor to write this post? Is this not a conflict of interest? My initial plan was to only ask Swapnil for inputs and I build on that. However, when I saw what he sent, I realised there is nothing much to add. I am confident that Swapnil does not get satisfied easily with what he knows or what he can do and the questions below are not only tough but also impartial.

I believe this post will new SEBI RIAs (registered investment advisors) to design their website so that many of these questions are clearly answered and the nature of the service explained beyond doubt. This will help both the client and the advisor in equal measure.

A word of caution: It is one to ask a question and quite another to be able to judge the answer. The only thing you can do is to ask, “is the answer comfortable enough for me to work with the fee-only advisor”. It will not help you or the advisor if you simply cut and paste these questions in your email to the advisor. They may simply respond, “I do not wish to work with you”. So you will have to ask these (or any) questions tactfully without coming off as arrogant or as an irritant. So, handle with care.

If you are a complete novice with respect to money, then some of the questions below may not make sense to you. Then do not ask them! The hope is that these questions and the ensuing answers will help you check if you are comfortable enough to work with the advisor (and vice versa!). 

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Quick Tips to select a fee-only financial planner

  1. Ensure that they do not recommend any commission based product either directly or via their partners (see below).
  2. Choose a planner who charges a flat fee and not as a percentage of your assets. Percentage of assets is a proxy for commissions.
  3. If you are going to invest in stocks as per their advice, tread with caution. If the relationship sours, then realigning your investments will be difficult and expensive
  4. If you too busy to keep an eye on your investments, I would recommend not investing in stocks based on anyone’s advice.
  5. Please recognize that the relationship is a long-term one. So be mentally prepared for this.

list of questions to ask a fee-only financial planner

List of questions to ask a fee-only financial planner

  1. The most obvious question is, “do you receive commissions or any form of incentives from any of the products that you recommend?”. A second one is, “If you refer me to some of your partners, what is your profit-sharing arrangement?”

Now to the questions by Swapnil. Some answers will be found in the planner websites. So look carefully so that you can avoid asking.

  1. How did you accumulate knowledge required to work as a financial planner? What education, training, experience and qualifications do you have in personal finance and investing?
  2. How many clients do you have? How much time do you typically spend with each client during the period of engagement?
  3. How often can I contact you during the period of engagement? (your expectation has to be reasonable. Cannot call them each time the market falls by 0.1%)
  4. Do you educate clients about the basics of investing and money management?
  5. Do you explain in detail rationale behind each recommendation?
  6. Do you recommend stocks? If No, why? If yes, can you beat returns from the portfolio of actively managed multi-cap funds with your stock recommendations? (expect proof!)
  7. “Will you make the plan based on investments I already have plus additions or will you modify what I hold?”?
  8. What is your philosophy of investing?
  9. Which instruments do you majorly rely on in equity and debt part of the portfolio?
  10. What return assumptions do you take while preparing a financial plan?
  11. How do you manage risk?
  12. Are there any instances where engagement with any client did not work out well? If yes, what were the reasons?
  13. Can I see a sample financial plan document?
  14. What are the areas of your core competency? (not an easy question to ask and could rub the advisor on the wrong side).

I would strongly recommend that you spend some time on the advisor’s website, read their articles and understand their philosophy before writing your first email to them. Since this is a paid service, it is your right to have expectations, however, you must have the right expectations!

If you wish to work with Swapnil Kendhe, you can contact him via his website, Vivektaru. You can read more about his journey here: Fee-only advisor journey: Swapnil Kendhe’s successful transition into a SEBI RIA

His previous guest posts are here:

SEBI Registered Investment Adviser Application Process: step by step guide

Are you a conservative investor? Here is how you can grow your money smartly

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About the Author M Pattabiraman author of freefincal.comM. Pattabiraman(PhD) is the author and owner of freefincal.com.  He is an associate professor at the Indian Institute of Technology, Madras since Aug 2006. Pattu” as he is popularly known, has co-authored two print-books, You can be rich too with goal based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management.  He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice. Pattu publishes unbiased, promotion-free research, analysis and holistic money management advice. Freefincal serves more than one million readers a year (2.5 million page views) with numbers based analysis on topical issues and has more than a 100 free calculators on different aspects of insurance and investment analysis. He conducts free money management sessions for corporates  and associations(see details below). Previous engagements include World Bank, RBI, BHEL, Asian Paints, TamilNadu Investors Association etc. Contact information: freefincal {at} Gmail {dot} com (sponsored posts or paid collaborations will not be entertained)
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  1. What to do if fee only financial planner says that he will not give or change your financial plan when in renewal years you change some of goals or you want to some changes in your financial plan. ? What to do if your fee only financial planner get disturbed by you SMS

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