Amar Pandit, Founder & Chief Happiness Officer, Happyness Factory.in
When it comes to getting advice regarding money matters, there’s no shortage of sources; family, friends, colleagues, insurance agents, advisors, planners, etc. And the result is a collection of unnecessary and irrelevant products.
People strive to be tagged as Gold or Platinum members of a bank. The general belief is that tag will provide them with customized, free and the best service. Recently, I spoke to an individual who told me, “I am a Platinum client of XYZ bank. They have allocated a relationship manager to my account, who checks up on my progress regularly and I have even received a financial plan free of charge.” The said plan was simply a financial strategy. There was no detailed analysis or thought given to the overall financial goals and strategy. Basically, the plan was completely wrong to base any financial goal upon.
What is then the correct way to get advice?
Creating a comprehensive strategy which would include every aspect of one’s personal finance would constitute the correct approach. Simply put, there is a pressing need to gain a holistic view of one’s overall situation prior to creating any plan.
Just like an infection in one part of your body can spread across other key organs, a single decision in the one’s financial life can affect their entire life. Thus, any decisions made regarding finance must be made keeping this point in mind.
Picking a good financial advisor
Having just one person or team who takes stock of your cash flows, assets, liabilities, liquidity needs and helps you firm up your financial goals is the best way to go about the process of choosing an advisor. Even for those who think they’re capable of making the right financial decisions, a financial advisor can prove effective and efficient in managing overall finances.
How should I choose a Financial Planner/Advisor?
Today, a lot of agents, financial distributors and banks are labelling themselves as financial advisors or planners, naturally causing confusion in the minds of investors. The important point to remember while picking a financial advisor is not to worry about what questions to ask them but to take cues from the questions they ask you.
Step 1: How detailed and comprehensive was the data-gathering interview?
This is one of the most important steps and drives all the advice you receive. Any good financial planner would look to gather comprehensive data to build a plan upon. They would utilize their skills to better understand the client’s overall situation and emotional issues to handle the overall picture. Sales people focus only on how their own scheme will benefit you, while avoiding the big picture and thus, should be avoided.
Step 2: Check how the planner discusses risks and returns with you
No good financial planner will ever promise you sky high returns. This indicates that they are the right person to work with.
Step 3: Avoid looking at the bank brand and opting blindly for advice
Banks are unlikely to dispense advice in the same way a certified advisor would. Most relationship managers in banks are sales people looking to sell maximum products. Thus, a wide-eyed approach is necessary while looking for the right kind of advice.
Step 4: Does the financial advisor cover every possible avenue of planning?
Areas such as estate planning, retirement planning, etc. should be discussed at length by the advisor in conjunction with the investor.
Often, our dreams overshoot our finances. At such times, having a financial advisor is imperative because he/she is the one who will be able to tell you exactly how you need to adjust your aspirations to match your means and how to best invest your current finances to maybe someday meet those dreams. One of the best ways to stay on track towards achieving your goals is by using Systematic Investment Plan, where you put in a certain amount each month towards a particular goal. Ideally, a comfortable SIP must be decided upon, one where you don’t feel the pinch each month and don’t feel tempted to skip out on making the SIP payment.
Someone once said on TV, “You wouldn’t go to a chef for a haircut, or a barber for food advice, would you?” The same principle works while picking the right advisor for your finances. The issue in today’s financial world is that with almost everyone using the similar designations, differentiating between the noise and the real deal is becoming increasingly difficult. Make sure you understand all terms being used to make the best and more importantly, the right decision for yourself.