How much returns a planner can generate for you?

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 🙂

43 Responses

  1. Reading the above discussion of u and Sevan, looks like a Financial Planner is more into educating their prospective clients on their investments rather than generating guaranteed returns on their investments. So, I feel the term “Financial Trainer” suits better rather than “Financial Planner”. I specifically refer Black Money holders becoz a person with a White Collar Job is the most honest tax payer where tax gets deducted at source and dont think that he earns to that level that he needs a Financial Trainer/Financial Planner.

    1. Shankar Nag-So according to you educating clients before going ahead into any buying or investing is waste kind of thing? How about me selling you the product and asking you to give me the blank cheque without knowing the fine prints of the products? Dear…education is the first step towards any investment and planning. Then finally comes the rest of the things. For your information I am getting clients through this media than any other. Financial Planning includes part of taxation but it does not mean that person who don’t need tax help must not hire financial planners. How many job holders know about term insurance, mutual funds, retirement planning, IRR, CAGR or basic things of investment??

      1. ha! now i see few “clients” (like me) responding. it was getting monotonous seeing only “Financial Planners” commenting all the time. Mr. Basavaraj, can I comment atleast now?

  2. Now a days, every Tom Dick and Harry claims to be a Financial Planner. I really dont think one needs a so-called Financial Planner until one has too much of Black money and he/she doesnt know how to make it white or evade tax.

  3. i <3 u seven 🙂
    hats off to u for keeping it alive till the end even though u got the "NO" answer at the beginning itself for the "Guarantee" u really kept it to the class level 🙂
    @basu : I respect u from the core of my heart for all the articles and I have to tell that I have learnt and will keep learning for ur blog. even though I felt lot of times to comment and thank you for ur works I could not do it. but I could not stop myself by commenting after seeing this conversation. seven must have njoyed alot :D.. please keep up ur good work basu sir..

  4. Dear Mr Basavaraj,
    You have written in detail and yet not answered my point.
    Let me reply to you point wise:
    1.”Favourable reply to client mean higher return?”
    Ans: no. I meant favourable reply means guarantee to achieve the end-point (goal).

    2. “Can you elaborate what is unrealistic goal?”
    Ans: This Realistic and Unrealistic terminology are the fancy of FInancial Planners. The Client just dreams of the goal. So can you define what is the range of realistic goal? Please elaborate the range for say 20 years. For example expectation of returns of 8-15% over 15 years is realistic. Anything above that is Unrealistic. Let this be an eye-opener for all Clients who read your Blog. (Of course you can give any range 8-10, 10-18…..)

    3.Please do not repeatedly bring in the phrase “Short-term Returns” to prove your point. In none of my previous posts have I mentioned Short-term expectations. Then why is it that this point keeps cropping up in each of your replies. “Beating around the bush?”

    4. Last but not the Least let me rephrase my Question so that the word “returns” does not come into picture (you seem to hate the word)
    Mr. XYZ has 20 years to retirement. He is ready to invest 20k per month. No yearly increase in investment. He has a dream to retire with a corpus of 2.25 crores. Can you help him?

    1. Sevan-For all your queries I have few lines of answers. Guarantee to achieve the goal-No one on this earth give you the guarantee of return including the products like Bank FDs, PPF or Debt Funds when you look at the long term view. Interest rate risk is always associated with it. How to fix the realistic return expectations? By looking at the past performance of each asset class you are investing. So in my view a realistic expectation of equity will be 10% to 12% over the period of 15 years. But this may increase when someone who is aggressive looks to beat the market with his skills and at the same time someone who not ready to take risk will try to invest in any secured product with happy with the return of around 8%. So to me what is realistic is based on past data and the future expectation of the asset classes. To give you the best example, gold gave good return over the 5 years, but will anybody predict the same kind of return expectation in future? No…so expectation again will be based on lot many things. I am ready to help your Mr.XYZ as the goal seems to be realistic to me…but I am not sure what about you. But again the return guarantee for his retirement goal-Can anyone on this earth will give you the guarantee of return? Please do share the product, person or organization which really ready to give me the guarantee for such a long goal. At the same time you may ask me, then what about the short term, as term is short interest risk tend to lower. So in such cases you may get some guaranteed products but longer run is unpredictable to god too. Thanks for your valuable inputs and healthy discussion.

      1. Dear Mr. Basavaraj,
        All this time you were pointing put about short-term unrealistic expectation. Even though I gave you an example of long-term, you still cannot commit!!!
        You gave me an example of Gold. let me give you an example of Nature. A tree which has grown by about 2-3 metres say in the last 10 years does not keep growing at the same rate!!!!!! So, one cannot look at the tree and bet that it will keep growing at the same rate average over next ten years. Right?
        At the end of the day, you and I both plan out things and make strategies, hoping that our strategies help us meet our goals. Neither I nor you can guarantee returns.
        So, I feel this is a typical discussion between a Financial Planner (FP) and a prospective Client (C)
        FP: Good Morning Sir. I am Mr. T.B. A Financial Planner with the following Qualification………..
        Client: Cut it short. How can you help me out?
        FP: As I see Sir, You have a very High Income but have not planned out investments for a wonderful life ahead.
        C: So how exactly can you help me?
        FP: First I will educate you, then build a great portfolio, review on a timely basis, asset allocate, review etc etc..
        C: Cut it short. So will I reach my Goal?
        FP: What Goal do you have Sir?
        C: I want to accumulate X amount of money for my son’s marriage after 3 years.
        FP: My God, Sir, 3 years is just too short time-frame for any Guarantee…
        C: Ok, then I want to accumulate X amount of money after 20 years for my retirement so that I may live my retired life as comfortably as I live today.
        FP: Well definitely we will strive for that Sir. I hope to help you out in reaching the Goal.
        C: You just Hope? You cannot Guarantee? How different is your hope from my hope? Do you know how my life will be HOPELESS if your hope doesn’t turn out into reality?
        FP: No one can Guarantee you that Sir. Not even GOD.
        C: So how exactly will you aid my present situation?
        FP: Sir, as I told you I will first educate you, then, plan….
        C: Cut the crap. Give a consice view.
        FP: Build a good Portfolio Sir, which will hope to reach your goal.
        C: And how do you define Great Portfolio?
        FP: Sir, its simple. Asset Allocation…. Division into Equity, Debt, Others…
        C: And when will I come to know that the Portfolio you have built is good? What if it does not achieve enough returns?
        FP: we will review it from time to time to hoping to meet your goal Sir…
        C: Hope Again!!!! Then how much do you charge?
        FP: Not much Sir.. Just X amount of rupees per year.
        C: You just Hope that I make payment to you or you need Guarantee?
        FP: Nice Joke Sir. I need Guarantee.
        C: JOKE? Who started the Joke in 1st place??????
        FP: Sir, I need to get income for my living right Sir?
        C: And you know what happens to my living if your HOPE does not meet my Goal after 20 years???????????
        FP: 🙁
        C: Let me strike a deal. You need not educate me and all. Cut the Crap. You manage all my investments. Let us strike a deal. I wont pay you anything yearly. At the end of 20 years, the wealth that has been accumulated in excess of my goal, You keep it as fees for all the years. If it is less than expected, you owe up the money. Is it ok with you?
        FP: Sir, Please do not Joke.
        C: I request you the same. Thank you….

        1. Sevan-Good to hear the discussion and love to see the discussion going on. Hope it to publish on my next post. If you look at comparing that planner with me then sorry. First thing, I will never call to anybody to hire me. Second thing if the client is so confident about managing his money and financial goals then it is of no use to provide service. Your service is in need when someone is actually messed up with the bad products or finance. See there are two choices when one look at any service-either he need to be a guy of do-it-yourself else hire that service. If both are not there then don’t know the result 🙂

          1. Dear Mr. Basavaraj,
            Service of Financial Planner is required only when the Client’s finance is messed up? I guess then you need to add this to the Wikipedia definition that you quoted earlier!!!! What about Client who has just entered Financial World and has no clue whatsoever about Finance and Investments? Until he messes his portfolio, you will not provide him service? What about wealthy person who is just parking all his money in FDs and is too worried about equities? No service to him too? Guess he has to buy a bad product to avail your service!!
            First things first. i never compared the FP i gave in my example to you. in fact you are Mr. B.T. (in short) and the example I gave was Mr. T.B. – so as to say just your opposite..
            And what is your take on the proposition that I had given previously- “Let me strike a deal. You need not educate me and all. Cut the Crap. You manage all my investments. I wont pay you anything yearly. At the end of 20 years, the wealth that has been accumulated in excess of my goal, You keep it as fees for all the years. If it is less than expected, you owe up the money. Is it ok with you??”

            1. Sevan-When I said about financial planner requirement in the above case, it is fully keeping in mind the mentality of a client whom you spoke. Hence I don’t need to add this to the Wikipedia definition.
              Simply my proposition to what you had is, you will not fit to my requirement as you need a person who can “GUARANTEE” you the return. Let them enjoy the service if someone provides. The kind of the person about whom you are saying is, I think will not pay his doctor fee until he get cured (if died in between then no fee for doctor…), he will not pay his brokerage until he gets profit from his stock investment, he will not pay commission to an agent of life insurance until his policy matures, he will not marry a girl until he fully live for life and come to know that she fulfilled his dream and finally he will not have kids until he gets full confidence that those kids will actually support him in his old age….Wow!!!
              You are indirectly re-jigging the same issue of “Guarantee”. So I am closing this discussion here itself and looking forward your reply in the future to know about you if you got someone a kind of planner whom you dreamt. Best of luck Dear Sevan 🙂

              1. Dear Mr Basavaraj,
                Thanks for the healthy discussion. Just to have my last word:
                Examples can be given both sides. You want a Client who:
                1. Will pay money in hotel when served veg. Biryani even though he ordered Chicken Biryani
                2. Will pay fees to his Travel planner for sending him to Timbaktu even though he wanted to go to Switzerland.
                3. Is ready to pay his insurance agent for buying him endowment plan even though he wanted pure term plan
                4. is ready to pay the builder for 1BHK even though he planned for 3 BHK.
                5. will pay the amount of merc even though he is being sold 800!

                And for your information a Doctor can be sued for negligence if not treated properly. Can a FP be sued if he messes up financial life?
                Your take on wife and marriage can be argued upon but I dont consider it worthy to in this public forum.
                And yes, definitions do not change as per situations. It remains constant. So I guess you add it to Wikipedia definition as the person who defined the original might not have come across the situation that you are in:-)

                1. Sevan-Yes example can be both sides. But for your information, when we are buying any financial products, the intermediary will get his fee or commission once you buy the product but not at the beginning itself. Also few examples of what you quoted will be of nature what I said.

                  Sueing Financial Planner-I hope the day will soon come so that the quality will remain with competition. I welcome the move when it happens.

                  Sevan- for your information, I am not in the profession of adding definition to Wikipedia, instead I have to concentrate on my profession. Also for your information, I am in this industry for 10 years and met the kind of people whom you referred above. So it is my daily routine to meet both positive as well as a negative person, as my profession is to help people in their finance. So your try to corner me will always be in vain. Also I always welcome such a healthy discussion on this platform, because it will automatically add value to my blog. Hence I always welcome you for the healthy discussion in future too 🙂

                  I am posting a few lines at the end of the above article to specially look for the comments what happened between me and you. Let us come out with new adventurous thoughts from others too 🙂

              2. ahahahahh…nice discussion…. To sum it up : ” So, i want to first watch a movie in PVR, only if the movie is good then i would like to pay for the ticket” ….ahahhhhahhah

                  1. Dear Mr Basavaraj,
                    I guess you must be thrilled to find an accomplice!
                    I had stopped replies thinking that no one else is interested in our discussion. But now that there is one more person interested, let us carry forward the discussion and see his opinion too.
                    Replying to your last points:
                    An intermediary/agent gets his commision because he has fulfilled his “duty” to sell the product. What happens after that is not his concern. But is it the Same with Financial Planner according to you? You build a great portfolio and expect fees immaterial of what happens after that?
                    One can sue someone only when the opposing party commits to some things mate. When all the members of your ilk conveniently do not commit to any numbers how can someone sue you? You tend to enter a contract with the Client with a win-all policy on your side without any commitment whatsoever!!!
                    Well no one has the profession of adding to definitions in Wikipedia. I just told that coz you used the definition from that in your article and then even modified it as per your needs. So maybe if you can add that subclause to Wikipedia, others might be benefited from your expertise…
                    10 years???? Great going… Some more time and you can be compared to our PM!!! And by the way I am not trying to corner anyone here. I am just putting forth my opinion in this Forum for all to read and discuss.
                    And Mr. Basavaraj to continue on the example that you gave on the Doctor vs patient (which is the most common example cited by all Financial Planners), may I bring it to your notice that, like you said the Doctor might not guarantee cure in all patients (like you cannot guarantee returns in all clients), but in few of those patients where all the points are favourable like the Doctor is sure of his diagnosis, there is a definite treatment for the said disease and the patient is sure to be compliant regarding the duration of treatment then I am sure the Doctor will give guarantee. This is in contrast where you were not ready to give guarantee even when all the points were favourable (investment, duration). Keep thinking!!!!

                    1. Sevan-Ha ha….let the readers of this blog decide who is right and who is wrong. Thanks for commenting. I don’t want any argument on this issue further, especially with you. Thanks for commenting and keep commenting too. Let readers enjoy your thought process and mine, as I posted special note to view our discussion 🙂

                1. Mr. Sreekanth,
                  many thanks for entering the discussion. You seem to be in a hurry to sum it up. Take it easy mate. Read everything before summing up… Atleast give examples properly. In the above discussion, all the reference was given to a definite end-point which can be measured. Like the returns after X no. of years. your example is over the board as there is a subjective end-point and not a objective one. if you go to PVR and being told that you will watch the movie for say 2 hours and then after 15 mins, they claim that the movie is over and ask you to vacate the premises, I guess you will accept it right?

                  1. And Mr Srikanth, there is one more point too… If you have the patience to read the entire discussion-you will find that there must be an alteration to your example: I would prefer to go to PVR to watch a Cinema, But Mr. R.S. a so-called “PLANNER” visits me and shouts over-the roof that my experience of watching the Cinema will be better if I go to XYZ theatre. But he wants his FEE for giving me the advice and what on reaching the XYZ theatre I find that its horrible? I guess you dont mind paying still?

                    1. Mr. Sreekanth – Just a slight midification to your wonderful example. You WISH to see a super-hit XYZ film in PVR. You buy the ticket for the film too and the theatre “Planners” make you watch instead a Z-grade Film. I guess you will be over the moon for their Planning. Right?

  5. This is not important for a client if you generate about 12% returns in a short time and that too with a small amount but if you can earn for him more interest than he would have received if he had parked the same money in a FD (for an example sake)

    1. Ashish-That’s what I said…to generate more than FDs within a short period of say like one year is coming with risk also. Will he be able to compensate that? The universal truth is-Return has been always directly proportional to risk…no matter which way you are investing either do it yourself way or through anyone. So that needs to understand first.

      1. Dear Mr Basavaraj,
        You have conveniently defended all the members of your ilk by repeatedly telling that it is unrealistic from clients’s perspective to expect huge returns in SHORT time frame. The Question is can a Financial Planner GUARANTEE better returns in a LONGer time frame say 15-20 years? We do understand that the Financial Planner plans for a better financial outcome on a long-run and we hope to spend our “retired” lives more comfortably than what we would have achieved by say investing in debt instruments.

        1. Seven-I slightly modify your question to ask your planner if you have any. “The Question is can a Financial Planner GUARANTEE better returns in a LONGer time frame say 15-20 years?” to “The Question is can a Financial Planner ideally suitable to you and help you out in reaching your financial goals and dreams whatever I have?” Hope I answered to your question 🙂

          Here I am not defending anyone, but the kind of mindset client should have while hiring a planner.

          1. Dear Mr. Basavaraj,
            The Discussion continues…
            I cannot possibly ask a Financial Planner to help me achieve my financial “GOALS” and “DREAMS” as I might be dreaming of building castle in thin air so as to say I might be dreaming of getting unrealistic returns for ex- am able to invest 10k per month but would like to have 25 crores retirement corpus in 15 years time. Then the question of Realistic expectations come into frame. SO i would like to ask you only, whether you will be able to guarantee a “BETTER” returns when all things from a Client’s perspective are favourable (timeframe and monthly investment)?

            1. Seven-Do you know the rate of return you are expecting? It is staggering approximate 46%. So my straight forward answer will be a big “NO”. You can find a planner or the asset class on this earth of your choice which really provide you such return (Please let me know also if you already find such an asset class which have past experience of generating this much higher return). This is the best example which I get to show all how much is enough?? 🙂

              1. Dear Mr. Basavaraj,
                You are getting my opinion wrong. Please read my statement again and carefully. I just gave an example of how unrealistic expectation a client may have. I never told that I want to have it. Clients may dream anything – realistic or unrealistic! In my last part, I have once again asked you, whether YOU, given all the aspects of clients perspective being favourable (both time frame and investment), as a Financial Planner can GUARANTEE BETTER FINANCIAL RETURNS than say a Debt Instrument?

                1. Seven-Guarantee?? Can you provide me the product which guarantee you for the long term? Dear even Bank FDs have interest rate risk when you look for long term perspective. Hence as a planner I can assure that I will definitely guide to build a good return portfolio which generates the cash flow to meet your financial goals. I think you are more worried about the return part than building a goal and looking to achieve it over the long term.

                  1. Dear Mr. Basavaraj,
                    See, here comes the pat reply… No Guarantee… Even when I told that all the perspectives from Client are Favourable (which rarely is the case), one still cannot get a favourable reply.
                    Ok, May I ask you how do you define a good Portfolio? I am sure that the experts disagree over this and there is definitely no IDEAL portfolio… You might build a Portfolio which is just not good but GREAT according to you but eventually how does one know whether it is good/great/bad/ worst? If the Client does not reach a Goal you might claim that his Goal was unrealistic…
                    A goal which looks realistic originally after a great portfolio was built might look unrealistic when the term nears, in case the portfolio has not managed to get expected returns. Then the Financial life of the Client is totally devastated.
                    Let me give you a case example. A client has 20 years to retirement. He has calculated that to reach his goal of retirement corpus he needs to have a return of 14%. Is this unrealistic or realistic? Can you help the Client out? (And the Client is not me… This is just a case example and not to be used for examples..)

                    1. Sevan-Favourable reply to client mean higher return? Can you elaborate what is unrealistic goal? To me it is the goal where period is short, high return expectance (again I may say the example you quoted like more 20% return) or insufficient funds to reach it. So if all these are favorable and realistic then one can easily reach goal.

                      This is the answer I am expecting from you and that was my motive to bring the real picture how planner can come into picture when you said “A goal which looks realistic originally after a great portfolio was built might look unrealistic when the term nears, in case the portfolio has not managed to get expected returns.” Who will do this activity especially in Indian market are concerned where everybody is selling a product rather than educating investors to be educate and manage yourself or hire a planner who can manage your money better way.

                      Considering the time period and the return you are expecting to the retirement of a client, I definitely say that it is realistic. But once again it needs the attention of a client or his planner to groom his portfolio over a long period.

                      I think you are just elaborating on the return part. Please read my above post once again, I wrote this post about how the client who is ready to handover me lumpsum and asking me to generate return of more than what he is getting from debt products. Is it a realistic approach or unrealistic approach to ask for higher return within a year? In that case I need to be a wealth manager than financial planner who’s responsibility is to look ovrall aspect of one’s finance like insurance, investment, tax planning, estate planning or retirement planning. If you are so much looking at return part without neglecting the overall picture what a planner can provide you then you are most favorable client to wealth manager but not to me.

  6. You have hit the nail on the Head, Basu!
    Yes, even I too keep coming across these type of clients.
    After all, we as Financial Planners are there to guide them to a financially better life and we are not Gods, to guarantee higher returns.

    1. Dear Mr. Srikanth,
      Your final statement has contradictory phrases within it. On on hand you say “Guide them to Financially BETTER Life”, you go on to say “not Gods to guarantee HIGHER returns”. In case you consider me a client, how can you make my life financially BETTER without getting me HIGHER returns from what I might get without your service? Now you may claim that you will help me understand the various spectra of modes of Investment and might even build a perfect Portfolio for me. But at the end of the day if the so called strategic investment does not get me better returns than what I may get by investing in simple debt instruments it just does not make sense. So, if you are so confident of your role to guide me to a financially better life, I ought to have higher returns.

      1. Seven-If you don’t mind, I thought to answer on behalf of Srikanth. See above what I expressed is too short sighted view of a client, like hiring a planner today and expecting an unrealistic return with a short span of time. When you are concentrating only on return part then you need to consult a wealth manager than a financial planner. Financial planning is a wide aspect where the return expectation is a part but not the only criteria to hire a planner. But at the same time I too agree with your concern and the same I expressed above as a client perspective. Hence a balancing act of a service what the financial planner provides is really a building block of a true client.

    2. Srikanth-Yes I agree with your views. Few think that hiring financial planners means hiring a super human computer, who is so powerful that it guarantee you higher returns. But sadly they not apply the same when buying the products like insurance (as investment) or some any other bad products.

      1. This is absolutely true Basu…Client should ask all the relevant questions not only while hiring a fin planner but also during the buying process of financial products. Client is conscious abt fee but not so conscious that a part of his payment ( read premium / MF sip etc ) include commission payments to intermediaries.. we can reduce the misselling if clients ask “n” of questions/queries while buying fin products too..

      2. I believe there are no bad / right products per se. If one can choose ( directly or thru a planner ) the products according to their risk, time frame, goals and rebalance the portfolio when required then .. all will be well ( at least in most of the cases / situations..)

  7. Fantastic article! Financial planning is streamlining available cash/assets towards goals, debt and expenses. This is the value addition offered.
    Only initial suggestions of good products can be made with suitable course correction every year.

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