Before you sign up your Financial Planner, check his expertise, certifications, testimonials and cost structure. Get clarity on fees and payment terms. Ensure all discussions are well documented. Once you get started, ensure you give quality time for assessment. Participate proactively in iterations and avoid procrastination. Work closely with your planner on Execution of your final plan and participate fully in the reviews.
Selection of the Planner: In addition to the expertise and certification of the planner, check the quality of testimonials. See the overall cost structure of the engagement and see if you are required to execute the plan only through the planner. Normally, it will help to retain the flexibility to execute the plan through the planner or through any independent channel. Does the planner need to in the same location as you? Not really, as we all live in a virtual world. Financial Planning is not a rocket science and can be well done through tools like Skype. That said; see what will make you comfortable. If you prefer personal service, then a local financial planner may suit you well. Recently, SEBI has mandated Investment Advisers to be registered with SEBI and comply with their regulation. Ensure that either your planner has obtained the registration or has at least filed the application with SEBI.
Fees: How much should you pay to your financial planner? Well, this depends upon factors like the level of service, size of your assets, experience and reputation of the planner. We have noticed that making a decent quality comprehensive financial plan could you cost you at least Rs. 15,000, to start with. You may also like to clarify on the yearly renewal model that your planner offers. Remember what the Master said. Price is what you pay and the value is what you get. We suggest that you focus more on quality of the engagement and the values that your planner demonstrates. Integrity, Transparency and client first attitude is something that will help you go a long way in working with the chosen financial planner.
Asset linked charges: Some planners may charge you fees as a percentage of the total assets they advise. In Mutual Funds, this model is typically observed. Based on the experience and the value addition by the planner, you may be charged 1% to 2% of your portfolio size. From a client perspective, it’s natural to resist giving such variable fees and ask for a fixed fee. We suggest that you strike a balance between your need to cap the fees to giving an incentive to the planner. In the percentage sharing model, you are naturally motivating your planner as his income is directly linked with the growth of your portfolio.
Payment Terms: Financial Planner may demand fees to be paid in advance. It depends upon the engagement fee structure and the quantum of the fees. For substantial fees, you may like to pay in parts and link to deliverable. Whatever you agree, remember that if you are working with a credible Financial Planners, he is not going to run away with your advance fees. The planner will only benefit from your engagement only if he adds value to your finances and serves you for a long period.
Documentation: Ensure the terms of the engagement are signed in writing. Review the confidentiality clause. Once you start the engagement, ask your Financial Planner to send you the minutes of every meeting. That said; make sure you make notes as well. Remember, verbal discussions are not considered as advice. So make sure you put up all queries in writing and ask the financial planner to give you a written response. Ask your planner to give you a schedule that will be followed during the engagement. Unless you really need, avoid physical copies of the plan. This is efficient and gives better security to your information.
Iterations: Normally, your financial planner will allow you to change data points once at the draft plan stage. Ensure to review your draft plan so that any discrepancy can be corrected. Go through the plan before your draft plan review meeting and understand how your planner has structured the plan. You may like to suggest a different way to prioritize your goals or a different way to execute. You may wish to optimize say your retirement planning baseline or rework with your spouse on the life insurance corpus that you must leave for the family if you are not around.
Procrastination: We have observed clients delaying the engagement inordinately. Sometimes, funnily, we have found client giving preference to watching say cricket match, over meeting the financial planner. Sometimes, the engagement is started and the planner’s fees are also paid but clients are not able to dedicate quality time to provide inputs. As mentioned above, a casual off from work can be very helpful. Every single day of delay in implementing your plan could cost you money. Remember, compounding is the most powerful tool that helps you to accumulate wealth much faster. The earlier you start, better it is for you.
Execution: Your planner will provide you an execution plan. Like everything else in life, we never have enough time to do everything. So it’s a good idea to prioritize. One of the most effective approaches we have seen is to space out the execution of the plan over say two quarters. This month, address your emergency corpus and health insurance. Next month, take a term plan and then work on your insurance policy consolidation and so on. Make sure you put a target date to all actions. Carefully look at the products that your planner has recommended. Ask him to justify the recommendation with a rationale. You can also ask your planner to provide alternate products. A good financial planner may already have detailed product analysis carried out on their personal finance blog etc. This will help you to make decision easily.
Reviews: Agree on the schedule of the review with your planner. Block your calendar in advance. Review your implementation plan in advance so that you can take your planners help in the challenge areas. Look for status of your goals and overall plan implementation.
We hope these tips will help you get on a fruitful financial planning engagement.
May you Get Rich.