P V Subramanyam, a chartered accountant accountant and financial trainer, helps readers pick the right financial adviser.
What will you ask your potential financial adviser? Here is a primer. Use it as a starting point; you can add to these questions, not reduce them. Tell him that you may be carrying a tape recorder and may want some answers in writing. See if this puts him off, or the questions do.
1) Are you a fiduciary?
In the U.S., a planner who claims to be a fiduciary is duty bound to put YOUR interest ahead of his. In the Indian context, you need to inform him that you are more than willing to pay a fee but need to know if this is the only fee he is receiving. If he says yes, tell him you want it in writing.
The problem is that it is much easier to earn Rs 50,000 as a commission by being an investing agent and it is very difficult to justify Rs 5,000 as fees – even if you can save the client much more than Rs 5,000 by avoiding ULIP fees.
2) What is it you sell?
You need to be aware of what services your financial planner offers other than financial planning. Is he part of a bigger organisation or brand? For instance, the individual in question could be a mutual fund agent, a life insurance agent, a PMS provider, a broker, an income tax return filer, and so on and so forth.
In such cases, the conflict of interest is much more difficult to handle. He may prefer recommending a ULIP for your portfolio rather than a mutual fund because his commissions from ULIPs will be bait.
That is why it is essential to get in writing that the financial planner is not being compensated for recommending any products; neither he nor the firm he represents.
Along the same vein, ask him if he is asset agnostic? This means you will not really worry about him shifting from mutual funds to bank deposits or real estate or vice versa.
3) How often do we communicate with each other?
Upfront you need to be clear on how often the two of you shall be in touch and the method too. Does he communicate via email, whatsapp, phone, facebook, or prefers personal meetings? Would you be dealing only with one person or others in the team? If yes, ask to be introduced to each of them.
Once the plan is in place, how often do reviews happen: semi-annually or annually? If between meetings, there is a need to make a change in the plan, will you be accommodated? Or an investment which is apt for you hits the market, will you be proactively informed?
Tell your financial planner that you would appreciate him admitting the mistakes made and come up with suggestions to cut losses.
4) Can you tell me something about your current clients?
Below are some of the questions you should go with….
What type of clients do you deal with: the ultra-rich or middle class; individuals or joint families?
In terms of value of assets, will I feature in your top 20% or bottom 20%? Is my business attractive to you?
What makes your client experience unique? Can I have three client references - people who are like me and who will answer my questions about you?
5) Can I see a sample plan?
Don’t settle for a vague description but ask for an accurate plan. Tell him he can mask the name and address of the client, but would like all the other details to be real. You can get specific too, such as preferring a client who has two small children, dependent parents, but own their apartment and have goals such as retirement, children’s education and vacations periodically.
6) What is your investment philosophy?
Does he have any strong preferences? For instance, is he pro real estate and would hate it if you are pro equity (like the author of this piece).
7) What are your qualifications?
Does he have an MBA from a decent institute? Is he a CA or a CPA? Qualifications by themselves do not matter. But they do indicate whether or not the financial planner takes his role very seriously.
If none of the above, then has he taken the trouble to get himself a degree like the CFP and is he interested in constantly upgrading his skills? If not, then ask him what makes him qualified to be your financial adviser.
You would have noticed that a pertinent question I have avoided is: How much will you charge me? The reason being, it deserves a separate post, which I shall tackle soon!
