One needs to first understand that your insurance advisor, mutual fund advisor, stock broker, bank relationship manager and real estate broker are not financial advisors. They either work to earn their commissions or for salary.
For example, an insurance advisor will earn commission on the premium you are paying to the insurance company whereas, a relationship manager in a bank will try and sell you the products to achieve their targets. If this is the case, then how do you choose the best financial planner in India?
Types of Financial Planners
If you remove the above mentioned options, you are left with 2 choices
- Fee – Based Financial Planners
- Fee – Only Financial Planners
How to choose the best financial planner in India?
Out of the 2 types of financial planners, how to choose the best financial planner in India?
Fee-Based Financial Planners
Fee-based financial planners charge you both – fee for providing you financial planning and commission from the products that you may end up buying from them.
The chances of being unbiased are minimal since a fee-based financial planner will definitely choose products in which they would earn more commission.
- They may sell regular plans for mutual funds in which earn 1% commission from the fund houses;
- Fee-based financial planner may compel you to buy critical illness policy which may not be required;
- They may ask you to buy a term plan from a company that you are not comfortable with; or
- They may ask you to buy term insurance plans offline since they get 5%-10% of the premium paid as commission.
Overall, a fee-based financial planner is not good for your financial wealth. They will suggest you the product which are beneficial to them and not to you.
The only other choice that is currently available in the market is the Fee-Only Financial Planners.
Fee-Only Financial Planners
Fee-only financial planners provide independent financial advice . They do not tie up with companies providing financial products and are driven towards providing unbiased advice to their end customers. There are 2 types of Fee-only financial planners in India.
- Financial Planners who charge a flat fee for their services
- Financial Planners who charge % commission on your asset base. Typically, they charge between 0.5% – 2%
I do not understand why would you want to pay % commission on your asset base. If a financial planner asks you to invest 25 lakhs in fixed deposits or in debt mutual funds out of your corpus, is the planner helping you gain some extra returns on your fixed deposits or mutual funds? Then why do you want to pay commission on your hard earned assets, if your answer is no.
If you ask me, I think the best option would be to approach a Fee-only financial planner who would only charge a flat fee for their services.
Fee-Only Financial Planners with Flat Fee
There are many financial planners who provide services on a flat fee model. How do you know whom to approach for your needs? What are the key factors that needs to be considered while selecting a financial planner?
Qualification – SEBI Registration of RIA is a basic requirement in India. It is always better to check if the financial advisor is a SEBI Registered RIA.
Experience – This should be the most important criterion in a fee-only financial planner that you should look for.
- Prior work experience– It is always beneficial to know the primary sector that your financial planner was working, before making a career shift. You may be wondering why should this be factored in. Trust me, it is a crucial factor. A financial planner with previous experience in retail financial sector would always be a better bet than a person who worked in IT. A person with a prior experience in a financial sector will be able to help you with more informed decisions. Though exception are always there.
- Current Experience – How long has it been since the financial planner has been in the profession of advising clients? Experience matters since they have an added advantage when it comes to handling real life scenarios and different client needs. I may be able to provide free advice on different theoretical matter, but handling real personal financial problems is definitely not everybody’s cup of tea.
Sample Financial Plan
Ask for a sample financial plan.
- Check if the financial planner is recommending you specific products based on your needs or is asking you to choose from too many options. I would suggest that you avoid a planner who provides you with too many options and insists you to choose from them. If you only have to choose the products from different options, what is the use of going to a financial planner?
- Check if the financial planner is showcasing returns of 15%-20% in mutual funds. The financial markets are now in a maturing stage and there is no way that you will earn 15%-20% returns in your mutual fund portfolio in the future. A more realistic expectation that one should have is in the range of 10%-12%.
Check for Reference
Ask for references, in fact you should ask for references in the same age group as you are in. A good financial planner will never shy away from providing you with references. They mostly thrive on word of mouth publicity. It would not help you if you are 40 years old and the financial planner is referring to a client who is 60 years old since the financial requirements are different for these age groups.
Check for Testimonials
Combine your references with testimonials. This will actually help you determine if the financial planner is putting actual client testimonials and not fake ones. Some clients may refuse to provide references. It is the duty of the financial planner to check with the client first and share their details only once they agree upon.
More the testimonials, the higher chances are that , the planner is good. However, testimonials should not be the only criterion to select a financial planner.
The most important thing is to check your comfort level with the planner. If you do not feel comfortable during your initial conversation, I would suggest that you refrain from choosing that financial planner.
That being said, your comfort level should not be on the basis of your perception and financial planner`s honesty. For example, if you ask a financial planner whether he would be able to give you a guaranteed 12% returns in mutual funds and if the financial planner says no, that should not be the cause of being uncomfortable. An honest advice should not be taken against a financial planner.
Currently, there is a wide range of fee structure that is available within this market space. While Rs. 10,000 for the first year, there are others who provide their services in the higher range of Rs. 20,000-25,000. You can choose a financial planner according to your budget.
Interaction – Online or Face to Face
Though the world is going digital, if you are not comfortable working with a fee only financial planner online, search for a planner in your city.
This would be an ideal approach to be followed before you choose a best financial planner in India. I have provided the link of fee-only financial planners below for your easy reference. You can visit their page and determine if they are appropriate based on your needs.
You can access the list of fee-only financial planners here.
Till then, Happy Investing!