July 27

Beware of “Me too” Financial Planners


Gone are the days when people get mislead and mis-sold with a particular investment/insurance product or a money multiplier instrument. With regulators getting strict on the financial advisory front and stressing on the financial literacy of consumers, sellers have come up with a new concept of selling which is called “Financial Planning”. Yes, financial planning is spearheading as a tool to miss sell these days. Many brokers, banks, Insurance houses , mutual fund companies are coming with new software and forms for distribution which captures the financial data of customer and presents a so-called financial plan within half an hour. Most of these financial plans are basically concentrated on the investment part only. A goal gets decided, target amount gets fixed and customer is presented with the amount he’s to invest in different products. So indirectly, the ultimate goal of seller or advisor is to sell.

Sellers and product manufacturers knows that spreading financial literacy will prove costly to them, so they’ve started taking advantage of this newly gaining popular concept called financial planning. In the last few months I have come across various marketing materials and advertisements where financial planning was getting promoted, through life insurance policies or Mutual funds. I met so many advisors calling themselves as financial planners who follow the same process of asking the financial details and ends up advising on the schemes of the company they are advisors for or they have interest in. The government does not regulate Financial Planners as Financial Planners; instead, it regulates Planners by the services they provide. For example, a Planner who also provides insurance transactions is regulated as an insurance agent. As a result, the term ‘Financial Planner’ is getting used inaccurately by some Financial Advisors.

What I am trying to point out here is that one should understand the concept in detail before taking up any of financial planning services from any advisor. Financial Planning is a very nice approach towards one’s finances; it would be difficult for anyone to find out the right planner due to non-regulation of this concept. Following are few points which one must keep in mind, to judge whether they are being approached by financial planners or product sellers, also whether their plan is a financial plan or a sales plan.

  1. Financial Planning involves the arrangement of finances in such a way so that you can make your financial life easy and achieve your financial life goals more comfortably. It is not only linked to Income and investments, but liabilities and expenses also and above all it is very much linked to your behaviour towards money. Financial Planning provides direction and meaning to your financial decisions. It allows you to understand how each financial decision you make affects other areas of your finances.
  2. To be sure that you are getting financial planning advice, check if the advisor follows the six step process. Every Certified financial planner has to follow this process when providing financial planning advice. These steps are designed under the standards of financial planning standards board and followed by financial planning professionals worldwide. The process involves gathering relevant financial information, setting life goals, examining your current financial status and coming up with a strategy or plan for how you can meet your goals given your current situation and future plans.
  3. Professional financial Planning involves the signing of engagement letter at the start of relationship which defines the terms, conditions and responsibilities of both, the planner and the client to provide transparency to the relationship and avoid any future misunderstanding. It also includes the disclosure of limitations and conflict of interest by the planner.
  4. Planner should understand the cash flow (inflow/outflow) of the client in detail. The Planner should take a ‘big picture’ view of your financial situation and make Financial Planning recommendations that are suitable for you. Recommendations should not be restricted to investments only; it should also cover budgeting, cash -flow and debt management, taxes, investments, insurance and retirement planning.
  5. Recommendations should not be restricted to a particular type of product like Insurance cum investment policies or mutual funds or post office schemes only. Your financial planner should be able to advise you on all the investment options available and also provide you with reasons on his advice visa a vis other products.
  6. Asset allocation is the major part in any financial planning approach. The thumb rule of investments i.e. 100 minus ag in equity does not work in financial planning, as this approach is more of a goal oriented nature.
  7. Financial planning is not a onetime activity. Financial position, family profile and requirements keep on changing with time. Financial plan has to be reviewed timely to keep  track on the performances of investment products and cash flow positions. Your financial planner should design the plan accordingly, be able to provide you with timely review and incorporate the changes as and when required.
  8. Take note of your advisor’s earnings. You must understand that there’s no free lunch and no one will advise you for free. There’s high probability of your advisor selling you the same products offered by the company he works for. If this is the case, then you may very well understand the biasness involves in the advice. A fee based planner will be more suitable to get unbiased advice for your financial future.

 Financial planning is a customised approach towards one’s finances. Every other consumer has different requirements and must be dealt differently. But due to lack of adequate awareness of this concept among people, sellers take undue advantage. You will find many self-proclaimed & company designated Financial Planners in the market, but most of them lack knowledge, competence & skills of a professional in the true sense. But when it’s a question of hard earned money one should be doubly cautious to get the most out of this process.


Financial Advisors, Financial Planner

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  1. Hi

    Nice and detailed post on selecting the true “financial planner” from various individuals/ organisations proclaiming themselves to be doling out financial planning services. But I spend a minute to think – investors who do not understand the basics of personal finance, how will they not fall into the trap of the so called financial planners. I think that education and regulation have to go hand in hand. The recent SEBI Concept paper on financial advisory should become a reality soon.

  2. Thanks Manikiran who has rightly mentioned about current strategies followed by financial institutions and sales persons. Recently I am writing a financial plan, he needs 40 lakhs for his son’s Graduation in abroad after 17 years. What would be the inflated cost @10%? Rs. 2.02 crores. PG for 20 lakhs 21 yrs from now the inflated cost@10% is Rs. 1.48 Crores. He has taken LIC endowment policies (From LICI & Max Life) and the Expected IRR is 4.5% -5% he is paying approx Rs. 2.64 lakhs, Bank FD Rs. 2.55 lakhs, he was complacent considering the amount of premium he is paying. But while I analyzed still away from approx 1.5 crores. How the buyer is benefited? In my mind an Investor must know why, when and how much he fund does he need. He must plan first and then invest. Unfortunately they invest and then plan for which they loss time and hard earned money both.
    Although a financial planner is charging an upfront which much more cheaper than what an investor pays indirectly by the way of cost for wrong product solutions.

    1. Thanks Uttam ji. It is very much required these days that clients should think beyond products and look out for solutions, then only they will understand the true meaning of financial planning.

  3. I m impressed with your financial planning importance for self employed businessman. Kindly guide me more about the financial planning.

    Regards .thanks

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