How to choose the right financial planner

In the New Year, many individuals and couples will resolve to go in for financial planning. They will then hunt for a good financial planner to do the planning for them. While there are benefits of taking services of a planner, choosing one with character and competence requires you to go the extra mile.

Why hire a financial planner

Our financial life has turned much more complex than was the case 15-20 years ago. With the returns from fixed-income instruments falling into single digit, most people will have to venture into the equity markets for higher returns. The reliance on loans to achieve financial goals also carries risks.

"You need expert help to deal with the volatility in equity markets or to ensure that you don't take on excess leverage in today's growing EMI culture," says Ranjeet S Mudholkar, vice chairman and CEO, Financial Planning Standards Board, India. Busy professionals are better off recruiting an expert as they lack the time required to do a good job of managing their finances.

Many people adopt the do-it-yourself (DIY) approach to financial planning. However, when things go wrong, they lack the objectivity required to identify their mistakes. They may focus too much on a couple of areas at the expense of others. A debt-averse person may focus all his energies on paying off his debts even in situations where the cost of the debt is low and considerable tax benefits accrue from it. Another investor may be focused on the rate of return he earns from his investments while overlooking the leakage that happens due to his spendthrift habits.

"By looking at the holistic picture from an asset-liability and income-expenditure standpoint, a planner can add considerable value," says Vishal Dhawan, chief financial planner, Plan Ahead Wealth Advisors. A planner will also focus on succession planning, a much-ignored area that can ensure smooth transfer of wealth from one generation to the next.

Characteristics to look for

A financial planner should be able to empathise with what your family and you wish to achieve. In addition to standard goals - buying a car and house, saving for children's education and marriage and retirement planning - many people have goals that are important to them. Some may want to engage in philanthropy while others may want to contribute towards their parents' post-retirement expenses. The planner should be able to help his clients achieve both standard and specific goals.

A planner should have the strength of character to be able to say things to the client that he doesn't want to hear. If a client's rate of expenditure is high, it is the planner's job to ask him to rein it in. Sometimes, clients lose money when a stock market boom goes bust, as in 2008. Often the investor attributes his loss to circumstances. Again, it is the planner's responsibility to point out that his loss occurred not just due to the market downturn, but because he was over-allocated to equities, or was leveraged via futures and options.