In one of the forums, I was discussing benefits of hiring a Financial Planner, when one of the attendees asked a question -” I want to hire a Good Financial Planner but i am confused as even insurance advisors call themselves a Financial Planner’.
This is not a rare question to be asked in a forum but plight of many investors. Financial Planning is a lot misused word.Today, visiting cards of every advisor will carry the name-Financial Planner, which is drawing lot of confusion for investors.So how should an investor identify who is a true Financial Planner?.
Product selling is surely one of the biggest differentiator. A Financial Planner will rarely recommend a product unless asked for.But one factor which differentiate a Financial Planner from rest of the advisors is the advisory process they follow.
Certified Financial Planners has to follow a six step process which is laid down by FPSB.This process clearly defines the way a CFP guide you in your personal financial decisions.
Step 1.Establishing Mutual Relations
A financial planner starts with building a relationship with the client.This relationship building has no time period.The sole objective of the planner is to create a trust with the client. During this period the client comes to know the scope of services of his planner which will define the scope of engagement between the two. This may include but not limited to a. Identifying the services to be provided.b. Disclosing the planner material conflict of interest.c. Disclosing the planner form of compensation.d. Determining the client and planner responsibilities.During signing the engagement the client also decides who will keep the track of finances that are going to be invested.
Step 2.: Assembling Data Including Goal Setting and Risk Profiling
Once both have mutually agreed the planner will present the information required to be provided by the client.This information is basically a fact finder and helps in knowing the clients personal and financial goals set by him and the quantatve data on his financials.
Step 3: Estimation and Assessment of Current Financial situation
In this step the planner will analysed the data so that the client’s situation is properly understood and plan of action can be prepared. This will include estimation of current assets,liabilities and cash flow.The objective is to determine whether there are sufficient resources to reach the client’s goals and what those resources are.
Step 4: Presenting Recommendations and Alternatives
Based on the understanding of what the client wants in the future and his current financial status, a roadmap to the client goals is drawn to facilitate the achievements of those goals.The planer explain the recommendations and inform on all minor details.If not satisfied with the recommendation, the planner comes up with alternatives.
Step 5: Execution of Financial Planning Recommendations
At this stage, the client will have agreed on certain recommendations or solutions to be implemented. The financial planner and the client will mutually agree on the type of services (if any at all) to be provided by the planner.This step will also include defining of further scope of engagement such as product implementation and periodic reviews of Financial Plan.
Step 6: Management and Auditing Financial Plan
The client and the planner decides who will monitor the investments. If the planner is in charge, he presents periodic reports on clients financial situation. If there is any significant change to the client’s situation, the strategies and goals in the financial plan are revised accordingly.
The above highlighted six step process is followed rigorously by Certified Financial Planners.However, the ease of each process is modified to accommodate different clients needs and satisfaction.
For investors to know whether their advisor is following a Financial Planning approach, they should undergo the following checklist:
- Check how comfortable your advisor is in disclosing the compensation details.
- What information of yours does your advisor rely on for his advise?
- Is your advisor recommendation are in alignment with your goals?
- Does your advisor makes repeated calls for product implementation?
- On every review check whether your advisor has details of last conversation.
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IMPORTANT DISCLAIMER!
This and All the other Articles/Videos on this blog are for general Information and educational purposes and not to be taken as an Investment Advice. Any Action taken by Readers on their Personal finances after reading our articles or listening to our videos will be purely at his/her own risk, with no responsibility on the Writer and the Investment Adviser. Registration Granted by SEBI, membership of BASL and Certification from National Institute of Securities Markets (NISM) in no way guarantee performance of the intermediary or provide any assurance of returns to investors.
I have had a financial planners Orlando for six years, but never paid him. Does he get paid by the mutual funds he sells?
Yes.If a financial planner is not charging a fee from you then he is receiving commission by the Mutual Fund Houses which is his source of income.No Financial Planner will provide any services for free.He need to earn also in order to make his living.So if you have been dong all investments through your advisor without paying him a penny then he is earning through product commissions.
This is very good and much needed article. Most people don’t have nearly enough life insurance for their family’s needs. You make it very clear.
financial planners Orlando
Thanx for the appreciation.
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Jacksonville,
Thanks