Three things to keep in mind when choosing a financial planner

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Decide which is right for you: “The kind of advice clients need will help them decide who to go to. Some clients who are fairly confident in their goals based on their self-assessment may simply need advice on how to invest in different avenues; in such a case, they can seek help from a distributor, ”says Harshad Chetanwala, co-founder of MyWeathGrowth. Likewise, many clients want to have a proper plan in place and want to organize their finances in such a way that all aspects such as income, expenses, current assets, risk profile, financial goals, planning Insurance and debt management are taken care of. They would do well to consult a Registered Investment Advisor (RIA) who can be an individual or a company.

If you are looking for a financial advisor, the first thing you should check is whether the person or entity is registered with the market regulator Securities and Exchange Board of India (Sebi). Everything else is just a supplement.

“Professionals who have certifications such as Certified Financial Planner (CFP) or Qualified Personal Finance Professional (QPFP) have completed rigorous training programs and adhere to continuing education requirements,” says Sadique Neelgund, founder of Network FP. these qualifications as well.

Currently, there are approximately 1,300 Sebi-RIAs in India. The number includes corporate RIAs and mutual fund distributors. Some large companies are hybrid in nature, that is, they fulfill both roles. Some distributors may also offer free financial advice.

“An individual RIA cannot be both an RIA and a mutual fund distributor. A corporate RIA has the option of being both an RIA and MF distributor (some may use the option, some may not). Sebi regulation is silent on insurance products, including insurance investment products, ”says Avinash Luthria, Consulting Financial Planner and Sebi-RIA at Fiduciaries. Thus, an individual RIA can also be a distributor of insurance products.

“RIAs charge a fee directly to customers, while distributors are paid through product manufacturers, but it’s still the customer’s money,” says Neelgund.

Understand the fee structure: Free financial advice can get expensive. If someone offers you free financial advice, they will receive income from a source that you may not be aware of. It is therefore important to understand the fee structure of a financial planner.

“Since financial planning is a paid effort, where the planner charges a fee to the client to work on their plan, clients should know the fees and the fee structure in advance,” says Chetanwala.

Of the 1,300 RIAs, approximately 500 provide financial planning services. Of these, around 350 are disguised distributors and will charge commissions, while around 150 are said to be paid financial planners. Of these, most charge a percentage of assets under advice (AUA) fee, while the rest charge a fixed fee. The percentage of AUA charged can vary from 0.25% to 1.5%, but most often it is 0.75% to 1%.

“Some planners may charge a fixed fee each year, with the fee decreasing from the second year as the effort on the plan decreases. From the second year, the plan is already in execution mode and the planners will focus more on monitoring and optimizing the plan with periodic reviews, ”explains Chetanwala.

The first year fees would be in the order of ??15,000 to ??30,000 but may increase depending on the qualifications and experience of a financial planner. Those who work with high net worth individuals may also charge more. Planners who work with fewer clients and spend more time on a single client would charge higher fees.

“In evaluating the fees, I think investors should really know how much they are paying directly or through commissions and what they are getting for it. A good financial advisor adds so much more value than simply offering better returns, ”says Neelgund.

Get to know: Meet with at least two to three financial advisors before you focus on one. “Think of working with an advisor as a long-term relationship. During these first “get to know” meetings, customers should ask questions about their product and service offerings, their mode of remuneration, their clientele, the category of customers they primarily serve, the experience. and the qualifications of the sector, ”explains Neelgund.

“The client may like to interact with a few existing clients of a financial planner to get a feel for how the planner worked on their plan and helped them,” says Chetanwala.

Before registering for the services of an RIA, it is essential that an appropriate agreement be drawn up and signed. An individual RIA must tell you in writing that it will not provide any distribution service. As the Sebi circular does not specify the insurance, please note in writing that your advisor would not provide advisory services for any product.

“In addition, from April 1, 2021, corporate RIAs can no longer charge fees for investment advice and distribute new FCP units to the same client. They can do it for different clients, ”Luthria adds.

Think of your financial advisor as your family doctor. A strong relationship with him bodes well for your financial health.

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