5 Questions That Will Lead You To The Right Financial Planner

You want to save and invest diligently, but are at a loss about where to invest, which instruments to choose, and how to apportion the investments for various goals. Or you may have an idea about all of that but are just too busy to put things in order and follow up your portfolio regularly.

You realise it’s time to seek professional help, but how do you find the right advisor? It’s not just about picking someone with impressive credentials or the right qualifications; it is about entrusting your financial future to someone who understands your goals, values, and the intricacies of the financial world.

There’s no right time to start a financial plan, but the earlier you start, the better. Says Abhishek Kumar, a Securities and Exchange Board of India-registered investment advisor (Sebi-RIA), and founder, SahajMoney, a wealth management firm: “Just like there is no right age to be physically fit, likewise there is no right stage to be financially fit. One should always start early so that they don’t commit errors, such as mixing insurance with investment or taking loans to fulfil their wants. Correcting these mistakes won’t be that easy later.”

So, here are five fundamental questions you should ask yourself; the answers to these will guide you in the right direction.

Do you need a financial advisor?

Each stage in life comes with a different set of financial goals. Events, such as buying a new vehicle or new home, wedding and marriage, childbirth and education, medical expenses, and retirement plans, often require a skilled and qualified professional to help you navigate your planning to meet the financial requirements unique to each event.

Says Krishan Mishra, CEO, Financial Planning Standards Board (FPSB), India, “Most people realise they need a financial advisor or planner when they face adverse life events that affect their finances badly. The recent example being the pandemic when people realised the importance of emergency funds.”

If you are overwhelmed managing your investments and saving for multiple goals, you will benefit from professional advice. He adds: “Additionally, if you are unsure about your long-term financial security, or lack the time or expertise to manage your finances effectively, consulting a financial planner can provide clarity and peace of mind. According to the 2023 FPSB Value for Financial Planning Research Report, 60 per cent of respondents said financial planning positively impacted their family life and mental health.”

What are your options?

Once you realise help is needed, the next step is to find the right advisor.

When looking for a financial planner, you need to understand the different types of professionals in this field in India. Though Sebi-RIAs are generally considered the most reliable as they come under Sebi’s purview, the number of RIAs is still low in India. So, finding them could be an issue in several states and cities.

Sebi-RIAs: According to the current regulation, Sebi-RIAs get a licence only when they hold a postgraduate finance degree, possess at least five years of relevant work experience, and maintain a valid National Institute of Securities Market (NISM) XA and XB certificate, with an exam renewal every three years. They are obligated to act in the best interest of their clients and are prohibited from receiving commissions.

CFPs: Certified financial planners are professionals certified by FPSB after completing rigorous coursework, exams, and ongoing education.

CAs: Chartered accountants undergo extensive training in accounting, taxation, and audit. While they may not specialise in financial planning, they can offer valuable insights into tax-efficient investments.

QPFPs: Qualified personal finance professionals are certified by Network FP, a community of around 1,000 financial advisors and distributors spread across different cities in India. They have to fulfil three criteria to get certifications, which includes having an industry licence and a qualification, such as CFP certification or chartered wealth manager.

MFDs And Insurance Agents: Mutual fund distributors and insurance agents are not advisors in the strict sense of the word. They sell mutual funds or insurance products and earn commissions based on sales.

Who should you choose?

Says Manikaran Singal, founder and principal officer, Good Moneying Wealth Planners, a Sebi-RIA, “Only Sebi-registered advisers are allowed to offer financial advice, including planning. This makes Sebi registration a non-negotiable criterion when choosing a planner, even if they have other international qualifications like CFP or chartered financial analyst (CFA).”

While Sebi registration is mandatory, additional qualifications such as CFP, CFA, QPFP, and CA are an added advantage. These certifications ensure that the planner has a deeper understanding of financial planning beyond investments, including estate planning, retirement planning, and tax advice.

Says Mishra: “When choosing a financial planner, it’s very important to verify the credentials of the professionals who you plan to engage for your financial planning. Different qualifications serve different purposes in the financial planning industry.”

Some advisors guide clients on where to allocate their funds, often with a focus on market-related instruments.

“CFP professionals offer holistic financial planning solutions that cover a broad range of areas, including retirement planning, estate planning, tax planning, and personal finance management. Unlike investment advisors, CFP professionals are not involved in corporate finance, but focus on helping individuals manage their personal finances and achieve their life goals effectively,” he adds.

CAs are often hired for tax-related issues, but some of them can offer advice based on their qualification and experience. Says Aastha Gupta, partner, SK Gulati & Associates, a Delhi-based CA firm: “Tax and accounting are conventional fields of CAs. Given that we study financial management in quite detail and obtain huge exposure during our articleship training, we also gather skills regarding financial planning services. But when it comes to practising exclusively in the field of financial planning, since it’s a specialisation, then CAs can hone their skills further by taking up jobs related to financial planning or study further like doing an MBA or a CFA.”

“The best combination for a client would be a Sebi-RIA who is also a CFP, as they are likely to have a comprehensive grasp of financial planning,” Singal adds.

To begin with, you can ask friends, family and peers for recommendations when selecting a financial advisor. In addition to this, you can also look for financial advisors online or through social media platforms. But do not forget to check their credentials and certifications for Sebi registration. The list of Sebi-RIAs is available on the Sebi website. Also, ask them for their portfolio and client list to review before onboarding.

What is the fee structure?

The next important aspect to consider is finding about the fee structure.

In 2013, Sebi introduced the “investment advisor regulations” to shift the market from a commission-based model to a fee-based one. Says Kumar: “According to the Sebi RIA Act of 2013, a RIA can either charge a fixed fee or a percentage of the asset under advice. While most of the RIAs charge fees under the latter mode, there are a few who charge a fixed fee for providing investment advice.”

When evaluating a financial advisor’s fee structure, transparency is the key. “Fee-only advisors charge a flat fee or a percentage of assets under management, which aligns their incentives with your financial success. This often provides more unbiased advice, as there are no commissions involved. On the other hand, commission-based advisors earn through the financial products they sell, which may create a conflict of interest since they might push higher-commission products,” says Mishra.

Knowing the model your financial planner follows is important (see Fee Models Of Advisors). It is also important to note that the investment advisor can neither render any investment advice nor charge any fee until the client has signed an agreement to this effect.

The payment of fees should be made through a mode which shows the traceability of funds, such as cheque or demand draft or direct credit to the bank accounts through NEFT/RTGS/IMPS/UPI or any other mode specified by Sebi from time to time. The advisor cannot ask for fees in cash.

You must also ask your advisor what is their fee structure: do they charge by the hour, by the plan, or work on a subscription model?

What do you need?

Before finally selecting the financial planner, you must understand your financial objectives on which your plan will be based. Accordingly, you should find out about the advisor’s focus area, such as retirement of estate planning, tax advisory, investment strategies, or a combination of these.

Ready your goals by seeking answers to these questions:

• Do I need budgeting assistance to track my spending pattern and meet my financial goals?

• Do I need to review my insurance cover for long-term protection?

• What strategies should the planner focus on to match my risk profile?

• Do I require debt management or guidance on handling loans?

• Will I need tax advisory too?

• Is estate planning important for passing on my wealth to my family or charities?

• Do I need help with retirement planning or other goals?

• Do I need a combination of all these services for a comprehensive plan?