Get Going With A Planner

Updated: May 26 2002, 05:30am hrs
Life is likely to become easier for millions of investors in the country. They need not chase investment consultants, experts or brokers for tips for long. Financial planning services will be available in India by 2004, which will make India only the 15th country in the world to have such services.

Financial planning, which promises to rewrite the rules of the game, is all about measuring the risk-bearing capacity of an investor and allocating assets to different investment instruments based on his risk profile.

Explains Association of Financial Planners (AFP) chairman Rajiv Bajaj, who is also the managing director of Bajaj Capital: "A certified financial planner will always be with an investor like a family doctor." The AFP, which will be the flag bearer of financial planners in the country, is affiliated to a global forum of financial planners. Some of the founding members of the AFP are bluechip financial service providers like American Express Bank, Deutsche Bank, IDBI Principal AMC, Bajaj Capital, HDFC Mutual Fund, ICICI Prudential Life Insurance, Prudential ICICI AMC, Franklin Templeton AMC and Alliance Capital AMC.

Today, the Indian investment arena is choked with many bottlenecks and the lack of investor awareness is only one among them. The age-old investment system existing in India is institution-dominated, where no individual is told about his risk profile or how he should park his money in various asset classes and in what ratio.

So, it is hardly surprising that an average investor normally holds a long list of grievances against market intermediaries as well as investment managers as their advice may not yield promised dividends. This is where a certified financial planner is expected to play his role.

An aspiring financial planner has to do a two-year course in order to secure the certificate, which is mandatory for offering such services. The AFP has established two colleges -- in Delhi and Mumbai -- for creating professionals. The CFP education programme is focussing on individuals working in the financial services sectors of banking, insurance, securities, accounting and others who want to acquire the knowledge and skills required to be a professionally trained and qualified financial planner.

The first set of enrollments for the course has already been completed, and the cost of the course is Rs 48,000.

The enrollment will be done throughout the year. According to Mr Bajaj, the response so far has been encouraging and the AFP has already received hundreds of queries for the course. A website,, provides the course-related info and enrollment.

The AFP has also formulated a code of ethics and the rules of conduct for financial planners in order to protect the client’s interest. This is aimed at meeting the high standards of professional conduct. The forum will also issue practice guidelines from time to time, which will be used to assess breach of professional standards. Such breaches will invite heavy penalties as well as cancellation of the certificate held by the financial planner.

How To Chose A Planner
While choosing a planner, the investor should pose some basic queries before the financial planner. The response from the planner to questions like his experience, qualifications, services, his approach to financial planning, the fee involved in the services, his track record, etc, will make the selection more easy.

As a precaution, investors can also ask the planner to give details of the services to be offered in writing. This written statement will act as a reference material in future. The track record of the financial planner in terms of whether he has ever been publicly disciplined for any unlawful or unethical actions should be checked before entrusting him with the task of portfolio management. Regulatory bodies like the Securities and Exchange Board of India (Sebi) and Insurance Regulatory Development Authority (IRDA) and AFP will keep records of such disciplinary actions. The services offered by a planner depend on a number of factors including his credentials, licenses and areas of expertise. Some planners may offer advice on a range of areas but do not sell financial products and others may provide advice only in limited field like estate planning or taxation.

Investors should have a fair amount of understanding about the AFP member’s approach to the financial planning. Some planners may prefer to develop one plan by bringing together all of the investor’s financial goals or others may provide advice on specific areas as needed. The investor should make sure the planner’s investment approach is not too cautious or overly aggressive for him. The financial planner may himself provide the service or may have others in the office assisting him. If the planner works with professionals outside his own practice (like solicitors, insurance agents or tax specialists) to develop or carry out financial planning recommendations, the investor should ideally get a list of these professionals to check their track record.

Another key issue before shortlisting the planner is the mode of payment. A financial planner should clearly tell the investor in writing how he will be paid for the services to be provided. For instance, the planner can be paid in salary by the firm for which he works and the client, therefore, will have to pay the company. Other factors to be checked is whether the fee is based on an hourly rate, a flat rate, a percentage of the investor assets or a combination of the three.

While the fee structure is bound to vary with the nature of service to be offered, the investor should secure an estimate from the financial planner in advance. Most planners would offer to review the investor plan at regular intervals. The investor should check with the planner whether there is any additional cost involved in such services and if so, will the cost escalate in future

Some of the planner’s business relationships or partnership may affect his professional judgement which is bound to inhibit him from acting in the interest of the investor. Hence, the investor, before choosing the planner, should get it in writing from him whether there is any conflict of interests. For instance, the financial planner, who sells insurance policies, securities or mutual funds, has a business relationship with the companies that provide these financial products. The planner may also have business relationships that should be disclosed to the investor such as business he receives by referring the investor to an insurance agent, accountant or solicitor for implementation of planning suggestions.

The Checklist
The AFP has also created a checklist for investors who seek the services of a financial planner. The investor, who opts for such services, is advised to check facts like whether the planner is diligent in carrying out the activities, investment recommendations suit his requirements, the fee matches the services offered, there is any conflict of interest with the planner, adequate information has been provided, and the planner’s recommendations are based on thorough investigations. Of course, the service will come with a fee unlike the free advice now. To ensure transparency and safety, the financial planner will be required to disclose his earnings to the client.

Investor Rights
The investor who seeks the services of the financial planner has certain rights to take control of his financial future. He has the right to a honest, competent, professional and diligent planner, objective advice, fair treatment, privacy and last but not the least, the right to lodge a complaint.

The trust between the investor and his planner is key to the success of a financial plan. The healthy relationship is developed once the planner takes his professional obligations seriously and places principles over his personal gains. The investor’s goal should be prime when it comes to making recommendations by a planner. The planner should ideally use his experience and judgement to evaluate the investor goal and accordingly give advice. If the investor has unrealistic objectives given his current resources, the planner should come up with alternative goals. The investor has the right to expect his planner be competent. In terms of qualification, he should be a certified financial planner as well as continue his education courses as part of his ongoing commitment to competency.

The investor should expect a fair treatment from the planner. In other words, the planner is expected to clearly state what services will he be providing and at what price. He should also explain the investor about the risks associated with his recommendations and any potential conflict of interest. The investor should always keep vigil whether the planner is making any personal gains from his purchase of a particular product recommended by the professional.

If a planner, for instance, provides investment advice or stock brokerage unless he or she is properly qualified and licensed to do so, the needle of suspicion is bound to point towards him. Professiona-lism of a planner demands that he should not mix the two. Also, if you need expertise in a particular financial market which the planner does not possess, he should refer the investor to other professionals.

A diligent financial planner should discuss the goals as well as tell the investor what he can expect from the relationship before engaging the service seeker. Once the planner decides that he can assist the investor after gathering required information, the professional should recommend well-researched products as well as implement it. If the investor does not find the planners’ service worth enough and wants to lodge a complaint against the professional, he can approach the AFP as well as the regulatory authority concerned.

The financial planning, which is just being introduced in India, has a long way to go before it becomes a panacea for all investment worries. The concept sounds good and raises a lot of promise. Nevertheless, the awareness about financial planning is virtually non-existent in the country and potential students hardly have any knowledge about such emerging vista. It will, hence, be an Herculean task for AFP to produce quality professionals who are critical for the growth of this industry. The success of this emerging profession also critically depends on the acceptance it gets in the financial service sector.

So far, the initiatives from the founder members do not appear enough to spread the concept and build up the trust with investors which involve major investments of resources. Founder members like IDBI Principal Mutual Fund and HDFC Mutual Fund did not even evince interest to respond to queries sent by this paper.