FINANCIAL PLANNING: How to choose an effective financial planner

The most important step towards transforming one’s financial life hiring the services of a financial planner. The other critical step involves finding the most effective person/firm for the same. It is important, as the financial planner is the one who is privy not only to the client’s personal financial information, but is also conversant with client’s attitude towards money and his risk-taking ability. He is the one who’s supposed to work towards ensuring that financial goals are met and that negative surprises are minimised. 

The three key parameters, on which the prospective financial planner can be evaluated upon, are: Attitude, Competence and Being a role model.

In fact, fees should be secondary to the primary objective of obtaining financial freedom through financial planning. The value the planner provides stands taller than the fees he charges. 

The right attitude would include integrity, creativity, and sensitivity shown towards the client’s needs. Integrity would pertain to the intent of placing clients’ goals and objectives before the financial planner’s own. Being transparent about the costs involved. Respecting the client’s right to confidentiality. Creativity would refer to being able to offer options to suit his cashflows and risk-taking ability. Offering clients simple and understandable products and not opaque or over-engineered ones. Sensitivity would mean expecting the financial planner to be a good listener. 

Competence refers to having knowledge and understanding of markets, its behavior and the various risks involved. Understanding that client's risk-taking ability is a function of market movement, as well as his mental and emotional fabric. The financial planner needs to strike the right balance between the amounts of risk a client wants to shoulder against the extent he needs to take. It would include the mathematics involved in calculating his financial goals, planning for the inevitable retirement, evaluating sums needed for life insurance, etc. It would also mean having a broad understanding of tax laws. It would comprise the ability to stay away from the temptation of over emphasising tactical and market-timing related advice. He should engage with all stakeholders in the family before doling out a financial plan.

Would you trust your financial life to someone who hasn’t sorted his own financial life for the better? No, we are not talking about the financial planner’s net worth; we are talking about his own approach towards money management. Walking the talk, doing onto his clients what he’d do for himself. His own life should be an example of financial prudence. Hence he should be a role model. 

One litmus test of ascertaining whether your planner is setting the right example can be done by trying to determine how well he manages his own financial life. Does he practice what he preaches? Is he living beyond his means on a day-to-day basis? Is he over-leveraged? Does he have his will in place? Does he recommend long-term equity investing for his clients and happens to be a day trader for his own funds? Does he strike an appropriate balance between risk and returns? Are his today’s assets in harmony with assets meant for tomorrow? Is he a saver or an investor? Does he place investments before expenses or vice versa? 

While the above factors are central in choosing an appropriate person, it’s equally important to listen to your gut feeling, your instinct. Once you have decided upon one person, it may not make sense to keep exploring others. 

Financial planning is about being disciplined to create, nurture and enjoy wealth. A financial planner’s job is like that of a fitness trainer. Clients’ financial fitness is what he strives for.

The writer is founder partner of Srujan Financial Advisers LLP