Why you should not hire a financial planner?

why hire a financial planner

In the last few years, financial sector has gone through a sea change. Launch of new improved financial products, revamp of the old ones, reducing the costs associated, coming up with direct plans in mutual funds, and above all changing the face of investment advisory by separating out advisors from distributors through SEBI ( Investment advisors) regulations, 2013.

Why is regulator so concerned about investment advisory space, asked Sunil, a friend of mine? Answer is quite simple. It wants to bring transparency in the complete advisor-client relationship, so client should not be taken for a ride by unscrupulous advisor/agents. Now clients can easily decide if they want services of adviser or just want to invest in a product with no backing of advice, or they can do their own research and go direct.

But don’t you think it all has increased confusion for investors. Even after creating a so called “safe space” for investors to deal with regulated advisors, there are many reasons why one should not engage any financial planner for his money management. If one wants to save money, then it’s better to start with not paying to financial planner. No? Sunil again.

This statement lead to a kind of debate or you can say argument between both of us. He said, you come up with the pros of hiring planner and I will answer with the opposite, and the views are not mine only, this is what people at large feel about hiring financial planner.

So I took the challenge and we started off…

Me – To give an objective and detailed advice, planner along with client collates complete financial standing which includes your income, expenses, Assets, Liabilities etc. Arranging your complete financial data and organizing it, makes you more structured and confident. This also makes the complete data more presentable and helps in understanding the complete financial picture.

( Read: what role does a financial planner play for you)

Sunil – But why should a client give all such details, why can’t the advisor just tell where should one invest, which is what we actually look out for.

It’s not worth the exercise, even if the advisor can guide you on how to optimize your tax structure, how to do proper budgeting to control expenses, analyze existing investment products and guide you on which one to keep and stay invested and which are not suitable for your goal or risk profile, can help you in proper debt management and help you in achieving your goals in the process.

The point is who has all the time to accumulate the complete data. You have your office too, family to look after, plan your vacations, parties to organize…and this is what life is all about. Why to waste time on such a boring exercise.

Me – Before moving ahead, Sunil, let me congratulate you for knowing most of the benefits that financial planner can provide. This is strange that you still are not in favor of hiring a financial planner. Anyhow let’s see, what else you know about this.

why hire financial planner

This complete exercise of financial planning revolves around your goals, something that you want to achieve with your money management. Like you may want to live free from your financial worries during retirement years, you may want to provide best education to your kids with having sufficient money in your hand to pay off the college expenses, you may want to make arrangements for your annual travel vacations without keeping worried about other important goals…and so on.

Sunil – Goals? This is the most difficult part, as this may involve lot of thinking. You seek financial planning to ease out your stress, but setting goals leads you to thinking and puts more pressure on your brain. You want everything in this world, and how can you write down few things and even prioritize the same.

Though you do have some important goals which you want to achieve with your limited finances, but you have other Goals too provided by your employer, and achieving those goals are much more important than personal ones…RIGHT?

 

Me – Well, All I know is that achieving your work goals will only make your employer RICH and not you. But if your priorities are different, let it be. Those are important but so are yours, so you need to balance out your efforts.

After understanding your financials and Goals, financial planner will create a strategy through a written detailed financial plan. This strategy will put you into a structured process of making investments, reducing expense (If required), clearing off your loans, buying required insurances, creating emergency funding, redeeming not suitable investments etc. Tax planning and Estate planning is also a part of comprehensive financial planning. When you follow a process you don’t fall victim to your behavioral biases.

( Read: what is a perfect investment portfolio?)

Sunil –  But what for? Following a process takes away your freedom. It won’t allow you to spend the way you want, it will make your investment process boring, and won’t let you invest in stock tips provided by your friends and TV channels. It may require you to clear off your credit card loan, even when you are comfortable paying the EMIs, It will require you to save first and then spend which will take away all the excitement of buying new product. It may restrict you from buying your next CAR, new Property, new Gadget.

So ,all in all financial planner will make your life disciplined, and we all know the bad effects of being disciplined.

Me – Then what’s the harm in that? After all focus and discipline lead you to success.

A Financial plan is written keeping in mind the time required for achieving of goals and the risk tolerance level of the investor. Both these factors results into the suitable Asset allocation that you should have, so you can earn the optimum returns within the acceptable volatility range.

Sunil – All said and done, but this Asset allocation thing will not let you take advantage of market movements. It may keep your portfolio diversified and balanced, but so what? After all, the entire ultimate goal is to make money at whatever cost. And when a financial planner cannot help you in finding the multi bagger investments, then what’s the point of hiring an advisor.

( Read: Asset location is as important as Asset allocation)

why hire financial planner

Me – Financial planning is a Regulated profession now. A true financial planner who provides detailed financial planning services, needs to be registered with SEBI as Investment advisor. This is mandatory and not optional. Those who are advising without registration are doing something against the Regulations.

SEBI has laid down stringent conditions on qualification and experience of the person, who wants to work as Investment adviser. It has laid down guidelines on the working of the advisory business too, which requires the process and documents to be audited yearly.

When a regulated professional works on your finances to guide you on how to make your financial life better and achieve your financial goals, then he needs to be compensated well. Especially when there’s no conflict of interest as SEBI RIA’s don’t earn anything from the product manufacturer.

Even if those who can offer the products under the regulations, needs to keep advisory and sales separate, so advice should not get biased. Like doctors, Lawyers, chartered accountants, SEBI Registered Investment advisors (Financial planners) are specialized people in their subject. And yes for their Services they do charge, like all other professionals.

No Professional designation can guarantee competence, but you’ll increase your chances of getting knowledgeable advice when you deal with Certified and regulated professionals

Sunil – Here again the question is when there is so much information available online, so many free tools to plan, so many blogs to follow ( many are being run by these SEBI Professionals only), so many financial websites provide enough material to work on personal finances, then what’s the point of engaging with professionals and PAY them too.

Even if you are not net savvy, then your friends, neighbours, Parents, colleagues offer you free of cost advice. Even though they are not professionals and neither their advice is audited, but you know them for many years now, they are more experienced and they will not give you bad advice.

You have other options too, like your insurance agent, mutual fund agents, bank relationship managers, who are serving people for quite a time now and there is no conflict of interest in their advice too.

My take –You’ll ask for it when the time comes

Sunil’s pointers were actually no different from what most of people think. They do know the importance of financial planning, but still wants to avoid financial planner’s services, with many different excuses. One of many is the fees associated.

In my experience, people seek for advice when they face specific situations, where they feel that errors can be more costly. Just like, many seek for Insurance policies or look out for higher cover, when they get diagnosed with some illness or are about to be hospitalized, same way they seek for financial planning advice when they are nearing retirement and are about to receive Retirement benefits. They want to make arrangements for their regular income without compromising on Growth.

Till the time they are in Job and are saving in EPF or on the advice of peers, everything was fun and on track. But they started having second thoughts when the account balance begins to swell, as now there’s more at stake.

People also seek advice when they are in some kind of financial soup, like under heavy debt burden or lost so much in stock market, and now they feel that some financial planner can take them out of the situation. This is same, when you seek doctor’s advice, after doing your own course of self-medication.  But in many cases things have already gone out of hand and no planner or doctor can help you.

( Read: Are you still searching for best financial planner?)

Bottom line:

Hiring financial planner or not is totally a personal decision. Doing it yourself is also not a bad option. But Sunil’s kind of mindset may give you more harm than benefit.

You know yourself better. If you feel that you need advice and ongoing support going forward, then start looking for a suitable advisor today only. Please understand it’s not only money that you invest, you also invest time, energy and skill. And you have to use all wisely.

What are your views? Do you endorse Sunil’s views or you think that having financial planner by your side is important?

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