There have been several interesting comments on the Suggest a Topic page while I was away and I am going to them up in the coming days as time permits.
For today, let’s look at P Thirani’s question.
I have been reading your posts in depth and as a professional the biggest problem I face is asking the right questions to my financial planner. I take my portfolio to him he asks some questions and makes some suggestions. A year down the laneâ€¦. same story. It would be of great help if you could tell what to ask a planer and how to asses his advice.
I think this should help lot of us.
In order to assess how well my financial planner is doing I’d like to see how he advises me on things I know for certain as well as things I certainly expect. And I certainly expect holistic planning.
A financial planner should look at your financial and personal life situation holistically, and then advise you on all aspects of your money like saving, investing and insurance.
If my financial planner is not helping me find how much insurance I need, can’t help me with my tax situation (unless the tax situation is very complicated), is not helping me with my asset allocation, retirement planning and goal planning then I would not be very satisfied.
I’d be interested in financial planning only if it is comprehensive unless of course you are opting for something else like a goal based plan or some other thing like that.
The next thing I’d ask is the planner’s opinion on the kind of insurance I have. Now, this is to check an obvious red flag which is the planner’s outlook on commission based insurance plans which is unfortunately what most people own and also his thoughts on term insurance. If the planner doesn’t stress the need for insurance then that will send alarm bells ringing in my head. My assumption here is of course you have dependents who will benefit out of that insurance.
Next question will be about credit card debt – this is the worst kind of debt and I can’t see how you can build wealth if you pay heavy credit card interest every month. If my planner is not too concerned about the leak caused by credit card interest payments then that will raise some red flags for me as well.
Coming to my portfolio I would look for how much it has churned and if my planner has a habit of getting in and out of funds or buying new mutual funds which is again a red flag.
I’d also see if it is balanced or heavily weighted towards one asset. If I find that my planner has invested a lot of my money in one asset class like gold then that will be a cause of concern for me.
Among the products he has helped me invest in I would like to know what the cost of those are – if they are mutual funds then what’s the expense ratio on that and is anything with a lower cost available? In general, what is the rationale of investing in those funds and does that appeal to common sense.
I would also be interested in how much inaction does the planner favor – does he suggest a lot of new things every year or does he ask you to be patient and stick with tried and tested products. Stability and sticking with things that have proven to work inspire confidence in me.
I’d also be keen to see if advises things like borrowing money and punting in IPOs and that of course is a big red flag as far as I am concerned.
These are some things that come to my mind and while slightly cynical, I would say that the benefit of financial planning should be very evident and apparent to you and if they aren’t then you should explore alternatives.