SEBI registered Investment advisor (RIA) with Registration number – INA 000000342.

Hope, you have heard about the Investment Advisor regulation proposed by SEBI.  This is a first step in regulating the advisory business in India. But in the current situation, anybody can be a Financial Advisor in India. Be careful about people who call themselves as financial planners with the intent of pushing a particular financial product which offers them a high commission. True financial planning professionals have an ethical obligation to hold your financial interests above their own.

It is difficult to identify a professional financial planner from the crowd. A Certified Financial Planner will be a solution to the above problem.

Certified Financial Planner in India

Certified Financial Planner (CFP) – What is it?

Please note that all financial planners in India are not professional CERTIFIED FINANCIAL PLANNERS. To earn the CFP certification, an individual must complete an extensive course of study and has to be tested on his knowledge in areas such as tax planning, investment planning, retirement planning, estate planning, insurance planning – areas all comprised within the financial planning process. With a command on these segments, the CFP practitioner is well prepared and qualified to provide you with a sound and professional advice.

Financial Planning – how will you benefit from it?

A Certified Financial Planner will help you in many ways. The CFP will help you in identifying your financial goals in life. These can be funding of the higher education of your children, their marriage, purchase of a house, your retirement planning, annual vacations etc. These goals can be achieved by planning it in advance by investing in  correct investment products, which are tax efficient also. He can also suggest you the best insurance options available to protect you and your family in case of any eventuality. This will ensure, that you have enough money at the appropriate time to meet your financial obligations in life.

How do you select a Certified Financial Planner for yourself?

You may ask your friends if they know a reliable financial planner. It is always better to go through a known source. You can get details of the CFP practitioners in your area from the website of the Financial Planning Standards Board India (FPSB). Please visit www.fpsbindia.org  for such details.

Different types of Certified Financial Planners

Broadly you can divide the Certified Financial Planners in 3 categories:

1. Working for a Commission

Such financial planners get their income from the products they sell. They are attached to a life insurance company, general insurance company, besides they also sell mutual funds and small savings for a commission. They will not charge a fee from clients for financial planning, but they get commission for all the products you are buying from them.

2. Working for a Salary

These financial planners will be associated with investment companies, banks, mutual funds etc. They receive their salary as compensation.

3. Working for a Fee

These financial planners will charge a fee from the client. They will not get any other income from any other sources.

How to select a Certified Financial Planner in India?

Most of the financial products are loaded with agent’s commission in India. It is very difficult to pick the best product among the many available in the market. If you select a financial planner who is not charging a fee from you, he will be getting his income from the commission for the products, he is selling to you. In all probability, he will offer you the products where his commission is high.

If you go to a financial planner who is working for a salary, there are dangers. All these employees are having their revenue targets based on their salary. They will sell only those products, where they get the maximum commission. This is a big issue with many banks in India.

It is in your interest to go for a fee-based Certified Financial Planner who is not selling any financial products. Such planners will be getting income only from you and he will try his level best to protect your interest. His future income also will come from your renewal fee only. But you have to spend some time, in buying the products by yourself as recommended by the planner. This will pay you huge dividends (benefits) in the long term.  Now you can buy almost all the financial products online, without any agent’s support at better terms. Online term policies offer very low premium compared to offline policies.

Ask for referrals

After shortlisting a Certified Financial Planner, you may ask him to give the contact details of his existing clients. You can talk to some of them and understand about their satisfaction level with the planner.

Terms of engagement with the planner and the fee

It is important to discuss the terms of engagement in detail. You must understand his fee structure in the first year and subsequent years. Most planners charge 10,000- 25,000 in the first year and 3,000-5,000 in the subsequent years.

Also, check up, how many times you can contact him.  Many planners limit the client interaction 2-3 times in a year. Don’t go for such planners. You should prefer a planner, who will permit unlimited number of interactions with him throughout the year, even if the fee is high.

Review of financial plan

You should take active interest in implementing the financial plan and share it with the planner. There should be periodic reviews depending upon the market conditions and change in your financial goals. At least, there should be an annual review, where you and the planner can spend some quality time. Some investments suggested in the previous year may be underperforming now. Such periodic corrections can be done at the time of review.

Direct Plan option in mutual funds – a boon to investors

With the introduction of the direct plan option in mutual funds, you will stand to benefit if you invest in mutual funds without any agent. If you invest in such good schemes as recommended by a Certified Financial Planner, you will benefit in the long term. You will save lot of money in this, which will be much more than the nominal fee paid to the Certified Financial Planner.

3 Comments

  • Sukhvinder Sidhu Posted June 26, 2013 3:29 pm

    Very good writeup, Melvin, informing how CFPs work. This rightly guides the investors to make informed decisions for themselves.

    The fee issue is one that is evolving just like the financial planning profession itself as a whole. But it is high time people understand the importance of true financial planning for their financial lives.

    And the contribution of CFPs working for fee is going to be immense in the evolvement of the financial advisory profession.

  • Kapil Tiwari Posted June 26, 2013 7:35 pm

    Dear Melvin,
    Good article. It sums up all the functions of a financial planner and has even given an idea about the fees involved. Thanks.

  • Tarun Posted June 27, 2013 4:43 pm

    Hi Melvin,

    Nice Article is posted, Thanks

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