What questions should you ask your financial planner?

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 lane…. 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.

16 thoughts on “What questions should you ask your financial planner?”

  1. Hello:
    I have a financial advisor who provides Investment Advice and Tax Advice.
    He has a Certified Financial Planner who does the overall plan and makes sure
    all areas of your finance are addressed.
    With the Investment Advice, what I have is an Investment Policy Statement,
    of what my goals are and how he is going to meet those goals.
    Regularly I address the performance of the Investments from the view point of
    this Investment Policy Statement.
    So far he has given me exactly what we agreed on. That is, the investments
    that are in my portfolio are a direct reflection of the agreements that we made.
    This advisor also has a CFA trainee in his office.
    There are many methods of payment. But you must look at the cost vs the benefit
    or the net benefit to see if you are happy with the fees you pay in exchange
    for the value you receive.
    I do ask a lot of questions. Anything I don’t understand I ask. Sometimes it
    is something very small – but I always get attention paid to the question
    until I am satisfied with the answers, so I can feel comfortable with my finances.

    1. Suppose the planner earns 5 times what you do, and has a wife who earns as much as him, and he has equity investments that he made that have grown a lot in the past, has two houses, one commercial real estate and three sources of income. Would you expect him to invest in the same areas that you do? 🙂

  2. Vivek, that’s why Financial Planner should also be in condition first to educate client about process and recommendations he used to provide. In my view solution for all these doubts about financial planners is, choose the well qualified person (not agents, advisers of particular company or the so called self proclaimed financial planners), better stick to fee based. In fee based advise you may not face conflict of interest while recommending you the product by your financial planner

    1. I still have a problem with this approach. Just because we pay money it does not become neutral or valuable. As “BEMONEYWARE” says a fool and his….

  3. Gents – I have a slightly different opinion. If you assume that someone would come and give you the right advice always with no benefit to themselves and only to you. surely you must be joking. Bottom line we are all responsible for our own money. At best we get choices / options and ideas. We are responsible for making the decision. Blaming someone else that they are doing it for commission is basically expecting some other person (however literate) to make a decision for us which is rather lame. Sorry if I sounded insensitive but that is life.

    1. Agree with you Vivek. I personally have tried going through books, going to a financial planner, getting financial plan done. My choices got narrowed ..so many MFs to choose from it seemed somehow easy. I n 2007 I invested in Franklin Prima a mid cap fund and when market crashed..my fund value went down. I had entered the MF with understanding that yes I would be in it for long time..but then I decided that I need to know more..And I accepted the responsibility of my decision. After discussing with my financial planner I moved my money to Franklin Prima Plus understanding yes we learn from mistakes.

      And this happens not only for financial products but everything such as fairness cream, Speak Asia, IIPMs, etc. A story Parable of the Talents or Parable of the Pounds in Bible says
      For to everyone who has will be given, and he will have abundance, but from him who doesn’t have, even that which he has will be taken away.
      Or as my mother often told me and I try to tell my children Fool and his money are soon parted.
      I did an article on Mis-Selling or Mis-Buying: It’s My Money, My Responsibility on similar lines.

  4. Manshu,

    Rightly pointed all facts. Adding to what Manikaran said one should be very clear about his/her requirements first.Many a times an individual has very vague expectations like highest return, best SIP and Best Insurance products. This lures to misleading advice given by many advisors because the best is required.Instead, clarity in ones requirement like child planning, retirement planning or only portfolio management can ease the process of searching the right planner. It also helps in asking the right questions as focus is very clear.

  5. A financial planner helping with insurance, credit card debt, asset allocation, retirement planning and goal planning ..A tall order.. The wish list seems long. For free or fee?
    The wish list Reminds of the story of Draupadi.
    Draupadi asked Shiva for a husband who was noble and strong and skilled with the bow and handsome and wise. Since no single man possesses all five traits, Shiva gave her five husbands instead each with one trait.

    Coming to financial planning (based on what I have read and seen) financial planner caters to : goal planning, asset allocation and execution. Taxation part at times. My financial planner gives me information of capital gain/loss. But then I have to pass this information to my tax consultant.

    Financial planning is still at a nascent stage in India where people are still looking for free advice. Slowly perception is changing and people are paying for the financial advice but still in minority. American company Ameriprise Financial Inc has started operations in India for financial planning for affluent urban Indian consumers signal a trend that affluent urban Indian consumers will move towards paying for organized financial advice

    TNS’s survey Trends & Insights into Financial Goals of Indian Consumers conducted by Ameriprise Financial surveyed affluent urban Indian consumers age 28-45 with an average household income of at least Rs 12 lakh or $25,000 residing in major metropolitan centres of Delhi, Mumbai, Chennai and Bangalore. Through a series of focus groups, personal interviews and quantitative surveys the study found out their goals, aspirations and dreams regarding their financial lives, and the factors that influence them.

    The details of survey are covered in my article Insights into Financial Goals of Indians!

    1. It’s not that tall an order, planners who charge in excess of Rs. 10,000 usually include these kind of things. It’s not possible to do this for free.

    2. Hi Kirti,
      Here I can also call you “bemoneyaware” 🙂
      Your analogies & thought process in awesome – I only want to add you are in wrong job. THINK

      @Manshu – People are looking for short term solution for their long term problems. Everyone want instant gratification.

  6. Manshu,I want to add somthing here. You have very well pointed out the questions or expectations one should have with a planner and ASking right kind question is very important to get right answer.Though whether the answer is right or wrong is specifically dependent on the expectation of answer seeker. I have seen people asking questions ,”which SIP one should go for these days,” “where should i invest to get good returns,” etc. all these questions are in my view is the invitation they are giving to the seller to missell. On the other side, asking the right question to right person is also very important. As financial planner and financial planning are most misused words in this arena. Many product seller calls themselves financial planner, which provides solutions by selling products. I feel comprehensive financial planning is the key to it. If one works for a financial plan first and at the end serach for best product which suits his/her achievement of goals then it will be easy for him. I have observd that many times people consider actual financial planner as a money making machine and asks how much return can u guarantee if i invest in your suggested product. LOL.. All in all basic financial literacy is very important for a consumer.

    1. Very well said Sir. The clients are also looking for short term answers and at-times do not follow it.
      ex: Which SIP to invest? And at times they put the money in suggested SIP without understanding the MF(it can be a midcap fund or sectoral fund).
      When the market crashes and client see’s negative returns in spite of being told by financial planner not to stop the SIP they stop the SIP.

    2. This is of course a very valid point and is something that I’ve heard from each and every planner that I have spoken to and will probably take a few decades to get out of this mentality.

Leave a Reply

Your email address will not be published. Required fields are marked *