Well when finally you decided to hire a planner then there are plenty of questions arise in your mind. One of them will be “If I hire a financial planner then how much more return he can generate for me?”
This is the question raised by one of my clients during our introductory discussion before hiring me. He directly asked me “Well, I am hiring you as planner so I need some value addition to my net worth. Tell me how much return can you generate at the end of this year?”. Is this a right question or wrong question?
There are two sides to answer this question. One is from a client perspective and another is from the Financial Planner perspective. Let us first look from a client perspective. If I am in the same place of what my client is, then I might have asked the same question to a planner whom I am about to hire. Because it is every one’s dream to earn something extraordinary return when we are hiring a professional. We are hiring because we felt that we are inept to handle our finance. So what is wrong in asking this question. If I am earning around a 8 % return by putting all my investments in debt products then what value addition this financial planner will give me to raise my returns from 8% to 9% or 12%? No doubt a valid question and he need to ask. So can we hire a planner who commits himself that he will generate more return than what we are? Wait.. Let us look this question in financial planner’s perspective.
What is the definition of Financial Planner? According to the Wikipedia, definition of Financial Planner is “A financial planner or personal financial planner is a practicing professional who prepares financial plans for people covering various aspects of personal finance which includes: cash flow management, education planning, retirement planning, investment planning, risk management and insurance planning, tax planning, estate planning and business succession planning (for business owners).
The work engaged in by this professional is commonly known as personal financial planning. In carrying out the planning function, s/he is guided by the financial planning process to create a financial plan; a detailed strategy tailored to a client’s specific situation, for meeting a client’s specific goals. The key defining aspect of what the financial planner does is that he considers all questions, information and advice as it impacts and is impacted by the entire financial and life situation of the client.”
So when we look at financial planner’s perspective the answer raised by the above client looks a bit short-sighted. Having liquid cash of around Rs.50, 00,000 and handovering the same to a financial planner to generate the best return of around 12% by next year because we are hiring him is completely a wrong way of thinking about money.
Then what I said to that client? I simply answered him like this “If I say you that I will generate 12% by next year then it is against my professional ethics as we can’t generate this much guaranteed return within such short span. But at the same time, if I tell you that I will definitely generate 8% then you will say what value addition you will give when I am generating the same by investing in debt products. So look at the overall picture of the financial planning profession. It is not important how much you returns you generate by next year…but how you can improve your financial life and how financial planner is adding his professional ability to meet your financial goals over the long-term.”
Also when you are investing on goal based planning, it is not worth to look at return over the next year for all your portfolio. Because suppose you have short-term goal then your planner will advise you to invest in any debt products. But at the same time equity investment for your long-term goals. So the portfolio invested in short-term will automatically generate a stable return where as an equity investment may or may not generate a good return when you look after one year.
Hope in future I will not face this question either from readers or from my clients 🙂
Note:-Request you all to view below lengthy discussion what happened between me and Sevan. Hope you will enjoy 🙂