How to select a good Financial Planner,TOI 30th May 2011 page 20

Fee Based Financial Planning

FEE BASED VS COMMISSION BASED FINANCIAL PLANNERS!

When deciding on choosing a financial planner, you should understand the difference between fee based financial planners and commission based financial planners.

By definition, a fee based financial planner charges fees for their advice on  financial plan. Unlike fee based financial planners, commission based financial planners earns from the financial products that you buy.

How Do Commission Based Financial Planners Get Paid?

Similar to an insurance agent, a commission based financial planner makes money when you buy a financial product such as life insurance. In many cases, a commission based financial planner will create a financial plan for you, without incurring further cost; however, this individual hopes that you will follow his or her recommendation and purchase insurance protection i.e. life insurance or health insurance and other financial products that may include mutual funds, stocks or annuities . Usually, the financial planner only will recommend products from companies that he or she is licensed to sell. If the financial planner does not sell you anything, then he or she probably will not get paid.

Understanding Fee Based Financial Planners

Some financial planners will charge you for a financial plan, even if you decide not to implement his or her recommendations. These individuals are referred to as fee based financial planners. The goal is to create a comprehensive financial plan that will allow you to address your financial concerns ranging from budgeting to estate planning. Yet, it is important to understand that a commission based financial planners also may do so. The difference between fee based financial planners and commission based financial planners centre’s around how you as a potential client will pay for his or her services. A fee based financial planner may not even want you to buy financial products from him or her, but you will be writing a check for the financial plan. In addition, the fee charged by a fee based financial planner will correspond with the number of hours needed to perform the financial analysis and to create the plan. If a fee based financial planner sells financial products and you decide to implement some of the investments of the plan, then you might have to pay an additional fee to the planner for the amount of assets under management.

Which Is Better?

Both a commission based financial planner and fee based financial planner can help you to achieve your financial goals. Consider the fees associated with choosing a fee based financial planner and the amount of commission earned from the financial products that you might purchase from a commission based financial planner.

 The advice of the fee based financial planner is independent of product sales and hence unbiased. The recommendations are client centric and professional. But many customers are of the view advice are available freely from the neighbour adviser, insurance agent or so called trusted relationship managers. But there is a risk in free advice. It is always better to pay for the advice and make the adviser accountable for the advice.

Rights of Clients

RIGHTS OF CLIENTS

What Clients Expect from Financial Planner?

Working with a Financial Planner can be an extremely rewarding and valuable experience for you and your family. If you’ve decided to work with a financial planner, it’s important to understand your rights in this professional relationship.

This describes the kind of treatment you deserve from your Financial Planner and helps you recognize whether he or she is putting your interests and needs first. You can take an active role in shaping your financial future when you know your rights and  you know what to expect from your Financial Planner.

1. You have the right to a planner who is competent

You have the right to expect your planner to demonstrate an appropriate level of knowledge to offer Financial Planning advice, such as attainment of the CERTIFIED FINANCIAL PLANNER^CM Certification. Your planner should complete continuing education courses as part of his or her ongoing commitment to competency.

2. You have the right to a planner who has integrity

Trust between you and your Financial Planner are central to a successful Financial Planning relationship. You rely on your planner’s honesty, professionalism and abilities to achieve your financial and life goals. When you know that your planner takes his or her professional obligations seriously and place principles over personal gain, you can develop the type of partnership that is crucial to the success of any long-term relationship.

 3. You have the right to objective advice

Your needs should be at the heart of all recommendations made by your financial planner. Your planner should use his or her experience and judgment to carefully consider your situation, and provide you with advice that best meets your goals. Sometimes, this objectivity may require the planner to explain that your goals are unrealistic given your current resources and financial commitments. Your planner may then suggest alternative goals or priorities.

4. You have the right to be treated fairly

Your planner should treat you the same way he or she would like to be treated in a professional relationship. This involves clearly stating what services will be provided and at what price. The planner should also explain the risks associated with his or her financial recommendations and any potential conflicts of interest.  

5. You have the right to Confidentiality

To get the best results from your Financial Planning relationship, you need to divulge relevant personal and financial information to your Financial Planner on a regular basis. Your planner should keep this information in confidence, only sharing it with others to conduct business on your behalf, at your consent, or when ordered to do so by the courts.

 6. You have the right to a planner who is professional

Your planner should not provide investment advice  unless he or she is properly qualified and licensed to do so. If your situation requires expertise that your planner does not possess, he or she should suggest other professionals who may assist you.

 7. You have the right to a planner who is diligent

Your Financial Planner should discuss your goals and objectives with you and explain what you can expect from the relationship before engaging you as a client. Once the planner has determined that he or she (or his or her staff and/or network of related professionals) can assist you and has gathered sufficient information, the planner should make - and, if appropriate implement - recommendations that are suitable for you. A diligent planner reasonably investigates the products or services he or she recommends. A diligent planner also closely supervises any staff working with him.

If you are currently working with a Financial Planner and are unsatisfied with the relationship, talk to the planner about your concerns. If you cannot mutually agree on how to improve the situation, you can very well find another planner.

Life Stages and Financial Needs

WHY DO YOU NEED FINANCIAL PLAN?

Life changing events, sometimes for the good such as getting married or joining a new job and sometimes for worse such as loosing the bread winner of the family or damage to the home by natural calamity will have financial implications on personal finance.

A professional financial planner can help to analyze the implications on your financial decisions and make a prudent financial plan to achieve your life’s goals. The goals may cover areas such as buying a house, meeting lifestyle expenses, educating your child in india or abroad, meeting marriage expenses of your child, planning a dream vacation abroad or creating retirement corpus.

Life stage goals and Financial Planning:

The financial needs will evolve with changes in income levels, increase of expenses, unique requirements of family members and post retirement expenses. The financial planner can support you in planning for various life stages. Some of them are as follows:

Single & Earning (Age Group: 20-28)

·                     Post Graduation in India or Abroad

·                     Contribution towards Household expenses

·                     Life style expenses for personal recreation

·                     Buying a Vehicle ( Car)

·                     Insurance needs for personal protection including health and personal accident

·                     Life Insurance needs for protection of dependents

·                     Planning domestic/international vacations with friends

·                     Having a good investment strategy to build wealth for the future

Early Married Life (Age Group: 28-32)

·                     Increase in Out of Pocket expenses for recreation and touring with spouse

·                     Increase in contribution towards Household expenses

·                     Inflow of additional income if spouse is earning

·                     Buying a Vehicle (car)

·                     Insurance needs for personal protection including health and personal accident

·                     Life Insurance  for protection  and to support the financial  needs of dependents

·                     Investment for Future goals

·                     Planning for taxation

·                     Buying  a house

Married With Kids (Age Group: 32-40)

·                     Increase in out of pocket expenses for recreation and touring with family

·                     Increase in Household expenses

·                     Primary and Schooling Education expenditure

·                     Buying a Vehicle ( Car)

·                     Buying  a house

·                     Debt Management including planning for repayment of Loan

·                     Vacation Planning with Family

·                     Insurance needs for personal protection including health and personal accident

·                     Life Insurance needs for protection of future needs

·                     Investment Planning for Wealth Accumulation

·                     Planning for taxation

Middle Age (Age Group: 40-55)

·                     Increase in Household expenses

·                     Sending Child abroad for Higher  Education after Schooling

·                     Buying a Vehicle (Car)

·                     Buying  a house

·                     Debt Management including planning for repayment of Loan

·                     Vacation Planning with Family

·                     Insurance needs for personal protection including health and personal accident

·                     Life Insurance needs for protection of future needs

·                     Investment Planning for Wealth Accumulation

·                     Planning for taxation

·                     Child’s Future Planning

·                     Planning for Childs Further Education in India or Abroad

·                     Child’s Future Planning specifically his/her Marriage planning

 Pre-Retirement (Age Group: 55-60)

·                     Reduction in contribution for Household expenses as child is now financially independent

·                     Savings for Retirement

·                     Insurance needs for family protection including health and personal accident

·                     Life Insurance needs for protection of future needs

·                     Investment Planning for Wealth Accumulation

·                     Planning for taxation

·                     Vacation Planning

·                     Planning for a peaceful retirement

·                     Investment Planning for Regular flow of income during retirement

·                     Estate Planning

Post-Retirement (Age Group: 60+)

·                     Increase in Passive Income from planned Investments made earlier

·                     Vacation Planning

·                     Grandchildren may come on the scene, so inheritance planning.

·                     Estate Planning

·                     Charity and social work

Myths on Financial Planning

Myth one:  I need to have some investments before I need  a financial planner. 

When someone thinks about Financial Planning, at first it comes to one’s  mind about his assets so that he can think about the advice where to invest? Should one go for blue chip shares or Mutual Funds? Should one apply for an IPO? Should one go for a second house? And so on……

 In fact Investing is about one fifth of what financial planning is all about.  Financial planners  give advice about risk management and insurance, income tax planning, retirement planning and estate planning.  And to the extent that one does not reduce one’s insurance expenses and income taxes and develop the discipline to start saving the amount needed to fund one’s retirement, there will not be  any investments to be advised about.

Myth two :  All of my insurance is in order.

We have yet to find a client who did not have inadequate insurance, unnecessary coverage or inappropriate deductibles. Further client gets satisfaction  from the  fact  that he is getting some proceeds on maturity even if the risk of death does not  materialize and  the maturity amount is a fraction of the total premium paid. Many prospective insurance buyers are  reluctant to buy pure term insurance because they will not get any amount at the end  if they survive the term.

Myth  three :  I'm saving enough for retirement.

Most underestimate the corpus required post retirement. Be hold!  The longetivity is increasing thanks to advancement of medical science. Further inflation is a must reality which will reduce the value of investment if not managed properly. If one does not plan properly, one may lose the financial freedom in the golden years.

Myth four  :  I don't need to save for my retirement because I'm going to die young.

So what will happen if one does not die young?  What's Plan B?  With advances in health and science, some futurists are predicting that many people alive today will live to be over 100. The recent data by the Indian Institute of Actuaries reveals that the average longetivity for men and women has increased by more than five years in a decade. Further double digit inflation has become a reality and will eat away the value of one’s investments. Insurance Companies are reluctant to offer medical insurance at advanced age.

Myth  five  :  If something happened to me, my family would know what my wishes would be.

Unless you've discussed your wishes with your family members  in detail and put them in writing in a will, chances are they wouldn't know what you wanted. On the contrary, the creation of will is very simple. It can be made in a plain paper  and is valid if  witnessed by two persons.

Myth six:     My estate will pass to my children.

The estate can be passed smoothly to the desired successors if you have created a will. If there is no will and one dies intestate i.e without a will, getting a  succession certificate from the court of law is not only cumbersome but also time consuming.The claims may get mired in disputes which may take decades. And behold! the agony to the surviving lady spouse witnessing the whole drama and even not entitled to press for a division of the living house.

Myth seven: I can not afford a financial plan right now

Many believe that getting a financial planning is very costly. It is not so. It is much less than  the fees of wealth management managers or the brokerages paid to the brokers or the commission earned by the Insurance adviser on your insurance Policy. The  fees paid to a financial planner is nothing in comparison   to the financial peace one gets in making a financial plan for himself.

Financial planning: Financial Planning Awareness Movement

Financial planning: Financial Planning Awareness Movement: "'No amount of money is enough if you do not have well defined goals. Comprehensive Financial Planning helps you to inspect various personal,..."

Financial Planning Awareness Movement

'No amount of money is enough if you do not have well defined goals. Comprehensive Financial Planning helps you to inspect various personal, professional, health related and financial aspects of your life and define your future goals before taking any financial decision. The Financial Planners' Guild, India (FPGI) is a non profit organisation founded and promoted by practising Certified Financial Planners, with a mission of spreading awareness about Financial Planning among Indian Public. If you and your friends wish to understand more about the concept, its benefits and usage in practical life, we would be glad to conduct a small session for you. Presently we can take up these activities in 6 cities of India including Mumbai, Pune, Gurgaon, Noida, Ghaziabad, Chandigarh and Jaipur. 

Come, Join us in Financial Planning Awareness Movement.'