Three things to keep in mind when choosing a financial planner

Decide which is right for you: “The kind of guidance that clients need will help them decide whom they should approach. Some clients who are absolutely sure about their objectives based on their self-assessment, may find them in different ways. Guidance may be needed to invest in the company; in such a case they can take the help of a distributor,” says Harshad Chetanwala, Co-Founder MyWeathGrowth. Similarly, many clients want to have a proper plan and organize their finances in such a way that all aspects like income, expenses, current assets, risk profile, financial goals, insurance planning and debt management are taken care of. They would do well to consult a registered investment advisor (RIA) which may be an individual or a firm.

If you are looking for a financial advisor, the first thing you need to check is whether the individual or entity is registered with the market regulator Securities and Exchange Board of India (SEBI). Anything else is just an add-on.

“Professionals who have certifications such as Certified Financial Planner (CFP) or Qualified Personal Finance Professional (QPFP) have gone through rigorous training programs and adhere to continuing education requirements,” says Sadiq Neelgund, founder of Network FP. Therefore, one can see such qualifications also.

At present, there are around 1,300 SEBI-RIAs in India. The numbers include corporate RIAs and mutual fund distributors. Some large firms are of hybrid nature, i.e., they perform both the roles. Some distributors may also offer free financial advice.

“An individual RIA cannot be both an RIA and a mutual fund distributor. A corporate RIA has the option to be both an RIA and an MF distributor (some can exercise the option, while others cannot). SEBI rules insurance products Including insurance products,” says Avinash Luthria, advisor-only financial planner and SEBI-RIA fiduciaries. Therefore, an individual RIA can also be a distributor for insurance products.

“RIAs charge customers directly, while distributors get paid through product manufacturers, but it is still customer money,” says Neelgund.

Understand the Fee Structure: Free financial advice can cost you dearly. If someone is giving you free financial advice, they may be getting income from some source or the other, which you may not be aware of. Therefore, it is important to understand the fee structure of a financial planner.

“Since financial planning is a fee-based endeavor, where the planner charges the customer for working on their plan, customers should know the fee and fee structure in advance,” says Chetanwala.

Of the 1,300 RIAs, about 500 provide financial planning services. About 350 of them are distributors in disguise, and will take commission, while about 150 will be fee-only financial planners. Of them, most charge a fee as a percentage of the property under advice (AUA), while the rest charge a flat fee. The percentage of AUA charged can vary from 0.25% to 1.5%, but usually ranges from 0.75% to 1%.

“Some planners may charge a fixed fee every year where from the second year the fee will be reduced as the efforts on the plan are reduced. From the second year onwards, the plan is already in execution mode and the planner will review the plan from time to time. Will focus more on monitoring and optimization,” says Chetanwala.

1st year fee will be in the range of ₹from 15,000 ₹30,000 but may increase depending on the qualification and experience of a financial planner. Those working with high net worth individuals may also charge more. Planners who work with fewer clients and spend more time on a single client will charge more.

“When evaluating fees, I think investors need to know exactly how much they are paying, either directly or through commission, and what they are getting for it. A good financial advisor may just give better returns. Adds a lot more value than

get to know each other: Meet with at least two to three financial advisors before choosing one. “Look at working with a consultant as a long-term relationship. In these initial “get to know each other” meetings, clients can learn about their product and service offerings, their methods of remuneration, their client base, the number of clients they need, and the number of clients they want to work with. Questions should be asked about the category they primarily serve, industry experience and qualifications.

“Clients may like to interact with some of the existing clients of the financial planner to know how the planner has worked on their plan and helped them,” says Chetanwala.

Before you sign up for RIA’s services, it is important that a proper agreement is drawn up and signed. An individual RIA must give you a written notice that it will not provide any delivery services. Since SEBI circular does not specify insurance, get it in writing that your advisor will not provide advisory services for any product.

“Furthermore, with effect from April 1, 2021, corporate RIAs cannot charge for investment advice and also cannot distribute new MF units to the same client. They can do it for different customers,” Luthria says.

Think of your financial advisor as your family doctor. A strong relationship with him is good for your financial health.