It is common mis-conception that hiring financial planners will automatically resolve their financial problems. But it is actually a two way process which they forget to understand. First-It requires a genuine guidance from financial planner and second-investors action based on the advise provided by planner. If any of the one action fails to act genuinely then the whole financial planning will crumble. So thought to write few things which you can’t expect from the genuine financial planners.
1) Selling only Insurance or Mutual Fund Products-When you meet financial planner, he is not in a hurry to sell you product rather, he is more concentrated on your current financial problems, situations and your concerns with finance. His main focus will be making you to come out from the current problems and starting you to lead a hassle free financial life. So he automatically create a strategy for those problems but not the products. Once you agree on the plan he recommended, then at last he may recommend you a suitable products. Which again is your wish to invest or not under him.
2) Rosy pictures about returns-Two days back when I am interacting with one client who is seeking my advice, he told me that he have lump sum amount which he want to invest for his kid’s education purpose. I recommended him equity exposure as the goal is more than 15 years. But he expressed his desire to go with either Post Office, Bank FDs or LIC products and asked me to advise the product which will make his money double in five years. Is it funny?? People always believe that hiring financial planners means he have some “Jadoo ki Chadi” and by using that he can surely make them rich in a shorter period. It is not so, but surely he can guide you in generating a fair returns compare to other products by his knowledge and true guidance. Always risk is directly proportional to returns. Hence more risk means more return. Which common people forget and they think that financial planner knows market very well than anyone and he will definitely generate highest returns than any one.
Financial Planners recommendations are truly based after analyzing your risk appetite, current financial conditions, future goals for investments and past experience of investments. So by being totally risk averse you can’t expect 15% to 25% returns from your planner. But surely he will recommend you the avenues of investments which are in true sense reach your financial goals.
3) Commission sharing-This is the one of the bad practice which was started by Insurance Agents even I heard from Mutual Fund Agents (Before abolishing entry load). They share you commission because-they are sure that they are selling you wrong products, they are desperate to meet sales target, lack of knowledge from both investors and advisers end and finally they are not thinking about the long lasting relation with you. Instead they are of the mind that, they sold you product and shared commission means end of road to you to contact him once again (as such agents are allmost part time agents). So you cant expect after sales service from such people.
But your financial planner is earning his revenue on fees and in some cases from products and he is disclosing everything to you and looking for meeting you on yearly base to build a long lasting rapport means he will never share his commission with you. Because he knows what he is recommending to his client (remember not selling) and he is ethically following the rules associated with his profession. He knows how much worth is his service so he charge for it. Hence if your are happy to receive commission with your agents means be ready to face financial problems due to wrong advice or service related issues in future.
4) Free Advice-In India it is believed that when the next door agent, your friend or relative who is agent is giving you the free advice then what is the necessity to pay fee and take advice. True logic, but have you analysed why they are giving free advice?? No…they are not giving you any free advice instead they are selling you the products which will generate those agents around 25% to 35% from back end. Now telling which one is best in the below two scenarios?
a) You take advice from agents, friend or relative who is also agent and insisting you to purchase the product of his recommendations (which he may say best available product in India). You going with the free advice and invested yearly around Rs.1,00,000 under him thinking as he is your neighbor, friend or relative he cant give you wrong advice, he cares you more and above all it is free advice.
b) You meet financial planner and he design you the plan and recommends you how to follow those recommendations based on the data you provided to him. He will charge fee. But he never insist you to go with the product he recommended also never insist you to invest under him. He just recommends and takes fee.
In the first case you are investing Rs.1,00,000 and indirectly paying around Rs.25,000 to Rs.30,000 to your neighbour, friend or relative. But danger is wrong product, future financial problems for you and future interaction with them as they work part time they may left the industry itself.
But in second case, he may charge you around Rs.10,000 but he genuinely recommend you the suitable plan as he is not in a condition of your neighbour, friend or relative agent. His motto is designing a well plan and recommending the suitable products and collecting fees on yearly base. He is not bothering about the product rather recommendations and long lasting relationship.
5) In-action by investors-It is one more wrong practice which investors do after hiring financial planners. They believe that hiring financial planners means they dont have to act and automatically everything will be taken care by planner. It totally wrong, your involvement in your money matters is most important than anyone. It is your hard earned money so your understanding about your finance will enrich your financial life. So my sincere advice is be active participant in financial planning activity of your planner. Hence he request you to be a active participant of the activity. Which you can’t expect from others.
List is big but thought to express a few for understanding purpose and simplicity.