How to evaluate a financial planner – It’s not a Number game

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evaluate financial planner

Sahil called me last week, and he wanted me to review his financial plan, which was prepared two years back by some other financial planner. He wanted to have my views on the same, just to cross verify if the plan prepared was fine or does it require some changes.

But, Why? Why do you want to review your plan from me? Don’t you trust your existing planner anymore? I asked Sahil.

No, that’s not the case, Manikaran. I have complete trust on my financial planner, it’s just I am not sure how to evaluate him, I mean on what parameters. Getting a second opinion from you may settle down my inquisitiveness. If your opinions match with my planner’s then I have no reason to doubt my planner’s ability.

Otherwise? I asked. Who would you like to believe? Me or him?

May be you. Sahil Replied.

And then after 2 years, when you could not evaluate me and you liked some other adviser, you would prefer him over me, Right?

Hmm…I understand what you are saying Mani, but then please guide me how should I evaluate my Financial planner? I should better meet you personally.

Sahil visited my office after few days, and we took the same discussion forward.

You asked me a very interesting question, Sahil, as How to evaluate a financial planner? I kept on thinking about this for 2 days, and today I will share my thoughts with you.

I think this question should be asked to the concerned planner himself and that too before starting off with the engagement. Let me explain.

See, you engage a financial planner with some reasons. Maybe there were some financial issues you were struggling with, or maybe that planner had pitched himself to you with some of his services which you liked and found benefit it. Those reasons and the sales pitch should be the base to evaluate.

Why did you select this Planner/advisor at the first place should be a point to look back upon, to have a view on if you are going in the direction you intend to or not?

In my view, a financial planner have to be evaluated at 3 stages –

  • At Initial engagement stage – Pre-Plan Phase
  • During the phase of Financial plan Preparation
  • Post Plan Phase
  1. Pre-Plan stage – This is the phase when you are in the search of a suitable financial planner who can help you sort out your financial issues. So you have to have clarity of what exactly you are looking for. Unless you are clear on your “Why”, you won’t be able to find a suitable planner.

At this stage, you may evaluate Planner’s education and experience in this field. Do not look at the titles of the advisers which may be deceptive, but the real qualification or certification can be of help. These days you find SEBI Registered Investment advisors too.

Since financial planning is a quite wide subject covering Investments, taxation, Estate, Insurance etc. and more than numbers, the planner needs to manage many behavioral aspects, so along with qualifications, you should also ask your planner on his/her experience and what kind of clients he has worked with. All this will give you a fair bit of idea as to if he can be of any help to your requirement or not.

You should clarify with the planner your understanding of financial planning, as in my experience many still believe that financial planning is all about maximizing Investment returns.

And if your planner believes the same, then you may not be dealing with the True financial planner.

These days one cannot ignore social media, so you may also do a google search and find out the other areas and activities if any the planner is involved into.

  1. Financial plan Preparation:

During this stage, you need to evaluate the quality of discussions you are having with your Financial planner. Are they going in the direction as you wanted at the first place?

Is your planner following a process based approach? Does he discuss your financial data, goals, your requirements, risk profile in detail with you? How is he going to decide on the suitable assets allocation for you? What are his views on your Insurance policies, your taxation?

Since financial planning is a misused term, so you need to be a bit careful here. You need to be sure that you get what you want, and should not be getting sold with some products in the name of planning. In case you feel that something like this is happening, it’s better to immediately discuss this out with the planner and if required cancel the engagement in between.

(Also Read: Misselling or Misbuying?)

  1. Post plan evaluation:

In my view planner’s actual role starts after preparation of the financial plan. As the financial plan is just a document, which tells what to do, but “How” part is just started.

And I think 1 year or 2 years is a very short time frame to judge a financial planning exercise, as it’s all about your financial wellbeing and achieving your long and short goals, which many times takes many years to reach. (Read: What role does a financial planner play for you)

Evaluate financial planner

Let me tell you a story here. Two years back when I joined a Gym, my target was to lose 10 kgs of weight. My instructor there laid down an exercise schedule and specifically told me that my target would be achieved by regularly coming and exercising in the gym, and not just by joining the gym.

Wasn’t it obvious? But still, he preferred to clarify this to me.

Then after few days, he told me a very strange thing. Yes, it was strange to me. He said that losing weight is about 40% healthy diet, 40% good sleep and 20% right exercise.

This was a kind of a shock to me.

I used to think that only exercising can do the work, but now I have to involve my spouse into it, so to cook me the right food, having discipline in my eating habits, make arrangements in my work schedule and bring some peace into my life to have a good night sleep.

There are some things where the gym instructor can be of help, but in some, I need the help of other experts.

In the start, I was a bit disappointed, but later on, I realized that this only advice showed me a path of true fitness that I was looking for.

The realization and understanding on the aspects to work on to reduce my weight comes only by joining a gym and by having the good instructor by my side, from whom I keep receiving the guidance time and again.

After following the Gym instructor on exercise, but not taking many efforts on my diet and sleep front, my weight was not reduced as expected but wellness quotient has improved as I started feeling more active which improved my otherwise lifestyle.

You cannot evaluate everything on numbers, especially financial planning by just looking at investment returns. There are many aspects which generally don’t get measured like prepaying bad loans, coming out of not suitable policies, following asset allocation which suits your risk profile, confidence that investor feels having an organized financial life, happiness of goal achievement, estate planning advice which pays after death…etc. Like Fitness Financial planning is also 80% Behaviour and 20% Investment Returns.

Got it, but does that mean that one should ignore Investment Returns completely? Sahil asked.

No, Not at all. I replied. But how much is the expectation and what should be reasonably assumed should be decided at the time of Second step i.e at the time of financial Plan preparation. And those assumptions should be accepted only after considering the Inflation numbers. (Read: This is what I call a perfect investment portfolio)

These numbers can become a base to evaluate the Investment returns of the portfolio suggested by the planner.

See, financial planning is like Yoga, practicing which you may not look like a body builder but with the stretching and breathing exercises, you will always remain fit and healthy. It’s all about wellness.

And Wellness like immunity cannot be measured. It’s a feeling. You may not lose 5 kg of weight which you intended to, but feel fit and active and this is all that matters.  Living Rich is more important than Getting Rich, as the former is internal and latter may be in comparison.

If your financial planner is helping you feel and live rich, then you are in the right hands, and if not then something is wrong, which you both need to figure out or that should be the time you may decide to take external help or a review from another planner.

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He’s MBA ( Finance) gold medalist, a CERTIFIED FINANCIAL PLANNER and SEBI Registered Investment adviser. An ex banker , having a decade long experience in financial services industry he manages clients across the globe. He is a regular contributor to various leading Media and publication houses. He keeps on writing for Moneycontrol, Dainik bhaskar, Business standard etc. He also delivers training on Various personal finance topics to various corporate houses. You may get in touch with him at [email protected]

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