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Tips to select the right financial planner

July 28, 2009 12:06 IST
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Suneet was looking to buy a car within two years. His friend advised him to invest in an equity mutual fund that offered him very good returns. Suneet took this advice and invested in the fund suggested by his friend. But then things changed.

The markets crashed and Suneet saw his investment lose its value drastically. Why did this happen? The main reason was that he did not hire the services of an expert financial planner.

Suneet is not alone. There are many like him who invest solely on the advice of their friends, relatives and colleagues. Others go to their friendly broker and ask him to suggest the best investment option for them. These brokers then end up suggesting an investment avenue that may not meet the investor's goal. Due to this, many investors end up losing money and not fulfill their investment objective.

Importance of financial planner: When we set out on a journey, we need a clear map, showing us the directions we need to follow to reach our destination. In the same way, whenever we set out to reach a financial goal, we need directions to help achieve it. This guidance is provided by the financial planner.

The financial planner recommends to you the suitable investment avenues based on your goals, time horizons and risk appetite. Once the investment is done, he monitors your investments to determine your investments are performing as expected. If not, he can suggest modifications to your financial plan to ensure you meet your financial goals as determined.

Important criteria to consider when choosing a financial planner: When it comes to choosing a financial planner you need to be very careful. Any mistake in selecting a financial planner can cause massive financial loss. Also you will not be able to reach your goal.

Here are the most important characteristics that every good financial planner must possess.

  • Qualifications: This criterion is very important from the legal perspective. Ensure the financial planner is qualified and registered with the respective bodies governing the corresponding investment options like AMFI and IRDA. These bodies conduct tests before approving the agents. This ensures the agent is well-versed in all aspects of investment avenue.
  • Capability: A good financial planner must understand that nowadays it is not enough to just get the application forms filled. The old method of 'one-size fits all' doesn't work anymore with the opening up of many new and innovative investment options. A good financial planner should be adept at finding out the most suitable ones for his clients. For this, he needs to conduct in-depth research in the avenues available.
  • Value-added services: Does your financial planner provide any value added services? Does he provide you with periodic updates about your investments? Does he keep you updated about the latest happenings in the market through newsletters and online tutorials? This is important to prevent an investor from panicking when the going gets tough.
  • One-stop shop for your investment needs: Does the financial planner provide you with various investment options? This is important to meet your changing life situations. E.g. if you are young, you would be more interested in equities. But as you approach retirement age, you should concentrate more on debt products. When you are married with kids, a term insurance should play an important part in your financial plan. A financial planer should act as a one stop shop for all your investment requirements by dealing in all these investment options.
  • Unbiased advice: The success of any financial plan lies in the unbiased advice given by the financial planner. Unfortunately these planners today have become rare, as most of the planners today care more for their commissions than for the welfare of their clients. While initially it may be difficult to judge if the planner is really difficult, you will understand this from your subsequent interactions with him. You can also ask your friends, relatives and colleagues for their references. Always remember, a planner's top priority is the welfare of his clients.
  • Easy to access: You have a major crisis and need your planner's help, but he is busy with other clients or has relocated to some other place. This is sure to create problems for you. Since you are building a long-term relationship with the planner, he should be easily accessible to you. Normally this is common in an organisation when the planner operates individually. If he is not easily accessible, it creates problems for his clients.

If you aim to achieve your financial goals, choosing a right financial planner is the most important step. He should be qualified, competent, easily accessible and able to meet all your financial needs. He will be your partner in helping you reach your financial objective. So choose wisely to achieve your goals successfully.

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