Three things to keep in mind while choosing a financial planner

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Decide who is right for you: “The kind of guidance clients require will help decide who they should approach. Some clients who are quite sure about their objectives based on their self-assessment may just need guidance to invest in different avenues; in such a case they can seek the help of a distributor,” says Harshad Chetanwala, co-founder MyWeathGrowth. Likewise, many clients would like to have a proper plan in place and want to organize their finance in such a way that all aspects such as income, expenses, current assets, risk profile, financial goals, insurance planning and debt management are taken care of. They would do well to consult a registered investment adviser (RIA) who may be an individual or a firm.

If you are looking for a financial adviser, the first thing you need to check is whether the individual or entity is registered with the markets regulator Securities and Exchange Board of India (Sebi). Anything else is just an add-on.

“Professionals who have certifications such as Certified Financial Planner (CFP) or Qualified Personal Finance Professional (QPFP) have undergone rigorous training programmes and adhere to continuous education requirements,” says Sadique Neelgund, founder, Network FP. So, one may also look for such qualifications as well.

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Currently, there are about 1,300 Sebi-RIAs in India. The number includes corporate RIAs and mutual fund distributors. Some big firms are of a hybrid nature, that is they perform both roles. Some distributors may also offer free financial advice.

“An individual RIA cannot be both an RIA and mutual fund distributor. A corporate RIA has the option to be both an RIA and MF distributor (some may use the option, while others don’t). Sebi regulations are silent about insurance products, including insurance investment products,” says Avinash Luthria, advice-only financial planner and Sebi-RIA at Fiduciaries. So, an individual RIA can also be a distributor for insurance products.

“RIAs charge a fee directly from clients, whereas distributors get paid via product manufacturers, but it is still the client’s money,” says Neelgund.

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Understand the fee structure: Free financial advice can cost you a lot. If someone is offering you free financial advice, they will be having an income from some source, which you may not be aware of. So, it is important to understand the fee structure of a financial planner.

“Since financial planning is a fee-based effort, where the planner charges a fee to the client for working on their plan, the clients should know the fees and fee structure beforehand,” says Chetanwala.

Out of the 1,300 RIAs, about 500 offer financial planning services. Of them about 350 are distributors in disguise, and will charge commissions, while about 150 would be fee-only financial planners. Of those, most charge a fee as a percentage of assets under advice (AUA), while the rest charge a flat fee. The percentage of AUA charged can vary from 0.25% to 1.5%, but most commonly it is 0.75% to 1%.

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“Some planners may charge a fixed fee every year where fees would reduce from the second year as efforts on the plan reduce. From the second year onwards, the plan is already into execution mode and the planners will focus more on monitoring and optimizing the plan with periodic reviews,” says Chetanwala.

First-year fees would be in the range of 15,000 to 30,000 but may go up based on qualifications and experience of a financial planner. Those who work with high net-worth individuals may also charge more. Planners who work with fewer clients and spend more time on a single client would be charging a higher fee.

“While evaluating fees, I feel investors should really know how much they are paying either directly or through commissions and what are they getting for it. A good financial adviser adds so much more value than just delivering better returns,” says Neelgund.

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Get to know each other: Meet at least two to three financial advisers before zeroing in on one. “Look at working with an adviser as a long-term relationship. In these initial “get to know each other” meetings, customers must ask questions around their product and service offerings, their mode of remuneration, their client base, category of clients they majorly serve, industry experience and qualifications,” says Neelgund.

“The client may like to interact with a couple of existing clients of a financial planner to get some idea of how the planner has worked on their plan and helped them,” says Chetanwala.

Before you sign up for the services of an RIA, it is a must that a proper agreement is drawn up and signed. An individual RIA should give it to you in writing that he would not provide any distribution services. Since the Sebi circular does not specify insurance, get it in writing that your adviser would not provide advisory services for any product.

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“Also, from 1 April 2021, corporate RIAs cannot charge fees for investment advice from and also distribute fresh MF units to the same client. They can do it to different clients,” adds Luthria.

Think of your financial adviser as your family doctor. A strong relationship with him or her bodes well for your financial health.

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