By Naveen Rego-Certified Financial Planner

Dec 23: Financial Advisors as a community is more misunderstood than understood. Let me explain to you the various types of players with a simple example.

What do you do when you have headache? You visit a doctor or hop to the nearest chemist shop.

What does a good doctor do? He will diagnose the disease and prescribe appropriate solutions like changing the diet, taking rest, a dose of medicine etc. He will also review your health after a few days.

What does the chemist do? He will recommend a pill without knowing what exactly has caused the headache.

The stark difference between a doctor and a chemist is that the former is a solution provider and looks for curing the disease and the latter is a product seller, trying to maximize the sale.

Now let us look at the financial advisory industry where we have solution providers like professional financial planners and pure product sellers like financial agents, postal agents, insurance agents, banks and stock brokers.

A financial planner’s objective is to provide comprehensive solutions to an investor’s problem but a financial agent is a mere product seller out to make profits from transactions. A good financial planner is one who is able to give you a combination of products, if required in the right proportion and one which is most suitable for you.

Now how does one differentiate between financial agent and a professional financial planner? The following are the differentiators:

• Financial agent represents a financial institution and only is interested in selling a particular product. Financial Planner represents you and recommends appropriate solutions.
• Financial agents main earning is commissions/brokerages. Financial Planners charge fees for unbiased advice.Financial agents are looking for short term relationship.
• Financial Planners are partners in your long term financial goals and conduct regular reviews.

Let me illustrate the above differences with a simple example.

Ram & Mohan who are both equally qualified and belonging to the same age group started saving around the same time. However, Ram earns 25% more than Mohan.

• Ram saved very passively and in an unstructured manner by approaching a Financial Agent. He was advised to invest Rs 15,000 per month in a traditional life insurance plan; ULIP’s & couple of mutual funds for 20 years. The annual returns of this portfolio were around 7% p.a.
• Mohan invested with proper guidance by approaching a professional Financial Planner. He was advised to invest Rs 10,000 per month in a good portfolio of stocks and mutual funds & debt for 20 years. He also did quarterly reviews in consultation with his financial planner and rebalanced the portfolio accordingly. The annual returns of this portfolio were around 12% p.a. The annual fees charged by the financial planner were Rs 5,000.

The results were astonishing. While Ram accumulated Rs 80 lac, Mohan’s wealth soared to Rs 1 crore. Do note that the total contribution of Ram was Rs 36 lac (no fees only investment) and that of Mohan was Rs 25 lac (Rs 24 lac investments and Rs 1 lac ) over 20 years.

It is very clear from the above that Mohan became wealthier in spite of contributing lesser than Ram. The difference is a good financial planner.

Some basic qualifications to search for a financial planner is educational background, ethical approach, experience, market standing, infrastructure, type of products he deals, compensation mechanism etc.
Financial planning relationship is a very delicate relationship where both the planner and the client should move together. Just like we respect a doctor, the same should be done with a financial planner.

Though it is said that health is more important than wealth, many a time we exploit our health in order to earn wealth. So it is very important to invest this wealth rightly by partnering a professional financial planner.

The writer is a practising Certified Financial Planner and a Professional Trainer. He could be reached at 98455 57582

Email: naveen@naveenrego.com