Today, with greater awareness on the need for financial planning and the various aspects that go into creating a thorough and precise financial plan, it is important to know that you are seeking professional assistance with your financial plan creation from the right quarters.

Almost everyone in the financial services industry today claims to do financial planning. In fact, major banks, brokers and distributors of financial products have opened departments or divisions which deal specifically with financial planning. So, let us understand the various kinds of service providers who are involved in this activity:

 

1. Banks
   
   They offer you everything from opening a bank account to remittances, to investments and now they help you get a financial plan as well.
    
2. Brokers/Distributors
   
   They offer stocks, mutual funds, insurance, post office schemes, fixed income products etc. Your neighbourhood mutual fund distributor, insurance agent, larger national level private distributors form a part of this segment. The larger focus of banks and distributors is to sell (and not advise) to you financial products, so that they can earn commissions on those products. In fact, there have been instances of mis-selling, whereby the broker protects his interest (through commissions) first rather than the client’s (wealth creation). Yet investors flock to banks and brokers because they offer a one stop solution shop - this is encouraging them to portray themselves as financial planners. It may add a lot of value to the perception of investors, but the focus on your financial health is not much. Most often, this service is offered for free since you are expected to buy financial products from them. Financial planning is not their focus area. It is a means to achieve their targets of selling financial products and earning commissions.
    
3. Pure Fee based planners
   
   There were not many pure fee based financial planners in the country a couple of years ago. But since then many individuals and companies have emerged on the horizon now, especially in the larger cities where the awareness of the concept is better. They are now quite serious about pursuing the business model of offering pure fee based financial planning services. Some of these planners are well known and others are not. Thanks to the awareness of financial planning education, most of them have also acquired the Certified Financial Planner (CFP) tag.
    
4. Service providers offering both services
   
   As is evident, these service providers offer financial planning as well as distribute financial products like mutual funds, insurance, stocks, etc. Financial planning becomes a vehicle which they use to distribute their products. A lot of brokerage houses have converted themselves into planners. Charge for Financial Planning The financial planning industry is yet to come to terms completely with charging for the service. While some who offer only planning services charge a fee which can vary from 5,000 to 50,000 and sometimes more, there are others who charge as a percentage of the assets you invest through them which typically varies from 1% to 2.5%. While some others have a mixed fee model and they charge you a flat fixed for a plan and then an investment fee on your investments.
    

So, given the different type of players in the financial planning space a question which is bound to arise is - How should I select a "true professional financial planner" who will help me get my financial plan, and provide me unbiased advice? The answer to this question is simple. Check the capability of the individual or the organization that you wish to hire as your financial planner. Ask some few simple questions such as:

 

1. What is the business model of the company? How does it earn its revenues?
    
2. What is the process that they would follow in building the financial plan? Have a look at a sample plan.
    
3. What is the team size? Their experience and qualifications?
    
4. Are their recommendations based on solid research or driven by commissions?
    
5. How long has the individual or the organization been in business? How many clients have they made financial plans for?
    
6. Can they give references of existing clients with whom you can speak to?
    

Do a detailed discussion with your prospective financial planner. Once you are satisfied on all these parameters, then go ahead and sign him up as your financial planner.

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Comments
mishamasud@juno.com Jan 19, 2012 That's not even 10 minutes well spent!
kabuto@kattaten.com Jan 19, 2012 Geez, that's unbelievable. Kudos and such.

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