• Sun. May 26th, 2024

Seven mistakes you could be making while engaging with your financial planner

Have you finally decided to hire an adviser to sort out your finances? Or, are you, perhaps, already working with one? While you can be reasonably assured that your money will be in good hands after taking this decision, you will still need to play your part in getting the best out of this relationship. Are you engaging with your adviser to the extent and in the spirit that this relationship warrants? Or could you be undermining your planner unconsciously or otherwise?

In a recent survey conducted by ET Wealth, financial planners conceded that the individuals who came to them for advice, disrupt the process in a myriad ways. Behavioural tics, wilful misrepresentation, and selective implementation are some ways in which they dilute the sanctity of financial planning. These habits and attitudes not only end up compromising the value of the advice, but importantly, prove costly for the clients in the long run. For no fault of the adviser, the client could fall short of the funds needed for a goal, or worse, fail to achieve them. If you expect the planner to make the right moves on your behalf, you must also participate wholeheartedly. Harsh Roongta, Founder, Fee Only Financial Planners LLP, insists, “When a patient consults a doctor, it is only with his full cooperation that the prescribed course of medicine can work. It is no different in an adviser-client relationship.” In this story, we bring out the common missteps and mistakes that clients make while engaging with planners. We hope it will help you unlock the true potential of your relationship with your adviser.

Q. What are the issues you face while engaging with clients?
Not involving the family in discussions and selective implementation of advice by clients are among the biggest concerns for financial planners.

Note: The survey was conducted among 41 financial planners. Figures are % of respondents. Figures do not add up to 100%.

Reveal all financial details to your planner
Incomplete information will lead to a flawed plan, causing problems later.

Financial planners point out that clients often suppress certain aspects of their finances. So, for instance, they may not reveal the existence of certain assets, such as a residential flat or a plot of land, to the adviser. This may be out of fear that the adviser will ask them to dispose of the asset. At times, individuals are not entirely forthcoming about personal circumstances, say, a special needs child at home, fractious relationship between husband and wife, or the need for home care for aged parents.

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Note:Ranked on a scale of 1 to 5 (1 is lowest and 5 is highest)Suresh Sadagopan, Founder, Ladder7 Wealth Planners, laments, “People think we can help only in the financial area and fail to show us the entire picture about their personal lives, which can have an implication on their finances. We come to know about some of these things later on, when the engagement increases, and modify our advice on getting clarity.”

By not disclosing these aspects, you are essentially leaving your adviser with a blind spot. For the planner to offer you the right antidote for your specific problems, he needs to have a complete picture of your current finances and personal circumstances. Make sure you put all your cards on the table. Don’t hesitate to divulge any relevant information during initial discussions with the adviser.

Don’t force your biases on the adviser
Impulsive decisions and emotional moves can derail the financial plan.
Tackling the inherent biases and perceptions of clients is part of the job description for any financial adviser. Some individuals come with unrealistic expectations. Often, financial planners are questioned about not targeting higher return on investments. Managing return expectations in a runaway bull market is particularly tricky, say advisers. “Some investors have only seen a one-way uptick in the stock market without the reality check of a long, painful correction. Their return expectations are very high,” points out Nishant Batra, Chief Goal Planner, Holistic Wealth. Sadagopan nods, “We are sometimes accused of being far too conservative in our return estimates.”

Many of us also have set notions about spending on vacations, buying property or even kids’ foreign studies and destination weddings. Advisers make sure to give a realistic assessment of the situation. The onus is on the adviser to check the worst impulses of the client. “During discussions, objections are made clear on taking big deviations,” insists Dev Ashish, Founder, StableInvestor. However, planners concede that it is ultimately the client’s money. Some accommodation for the client’s suggestions and expectations cannot be avoided. As long as the financial calculations are not being blown apart, advisers relent on certain deviations. Roongta avers, “As advisers, we have to pick and choose our battles.” Typically, an adviser makes several iterations of the financial plan before delivering the final version. Subsequently, if any deviations are taken by the client that are not in his interest, these are recorded, along with the specific objections raised by the adviser.

Implement the planner’s advice fully, not partially
If the plan is not followed in toto, it is bound to impact your financial health.
Making a financial plan is not difficult. It’s the execution that is critical,” asserts Batra of Holistic Wealth. This is where many individuals slip up. One in every two financial planners who participated in the survey highlighted selective implementation of advice as a big concern. While many clients follow the suggestions in earnest, there is a tendency among many to deviate from the path. “Due to inertia or their circumstances, some clients don’t fully execute the suggested plan,” observes Dev Ashish of StableInvestor. For instance, some individuals are recalcitrant about scaling up the investment outlay as suggested. Others will selectively invest along the suggested lines, but dither in other areas. This is akin to a patient using his own discretion to decide which of the doctor’s prescribed medicines he will take.

Q. How agreeable are clients to follow the prescribed advice?
One in two planners feel selective implementation of advice is a big concern.

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Note:Ranked on a scale of 1 to 5 (1 is lowest and 5 is highest)

It is even more problematic when the individual disregards the pre-discussed, goal-based plan midway through the journey. Dilshad Billimoria, Managing Director, Dilzer Consultants, quips, “We have seen clients going back on the plan merely on a whim, taking out money from one pot and using it for other goals.” This disrupts the entire goal math and forces the adviser to rework the plan. Finally, however, it is the client’s responsibility to pay heed to the advice that has been given by the financial planner. He needs to understand that any delay in the execution or partial implementation of the recommendations is bound to compromise his own financial health and impact his family.

Do not take financial advice from multiple sources
Finfluencers and media don’t understand your specific situation to offer advice.
Another bone of contention for advisers is the injection of opinions from multiple sources when it comes to financial planning. Close relatives and friends are known to wield a heavy influence on financial decisions of individuals and this often feeds into the process. Besides family and friends, media has always played a big role in the decision-making process of investors, be it for stock-picking or fund selection. To add to the merry mix of free advisers, nowadays, finfluencers have taken on this role, doling out financial advice with impunity. Given the extensive following they enjoy, these ‘experts’ also hold credibility and a huge sway over the masses. A financial planner remarks, “Many look at fancy investments that are peddled through various social media channels and want us to review them.

Q.To what extent are clients’ decisions influenced by third parties?
Friends, relatives and social media exert a huge influence on clients’ financial decisions.

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Note:Ranked on a scale of 1 to 5 (1 is lowest and 5 is highest)

Not enough importance is given to the hygiene factor.” “Derived wisdom from others is a big challenge for financial advisers,” concedes Roongta of Fee Only Financial Planners LLP. Nearly half of the financial planners who were surveyed by ET Wealth face this problem on a regular basis. Whether it is family pressure to buy another property or social media affinity for exotic alternate avenues like crypto currencies and P2P lending, individuals are easily swayed. In such situations, it again falls upon the adviser to sit the client down and give a realistic assessment of the action sought by him. However, if you are seriously working with a planner, it is best to keep these external influences at bay and let the expert make an informed choice. After all, you are paying him to exercise better judgement in precisely these matters.

Don’t neglect financial follow-up or review
Financial planning is not a one-time process and needs to be updated with changing circumstances.
Most of us would never go a year without maintenance when it comes to our homes or cars. Yet, some are happy neglecting the annual reviews of their finances. Financial planning is not a one-time ‘fill it, shut it, forget it’ activity. In fact, it is a life-long pursuit. Advisers maintain that some clients don’t follow up after the initial plan or advice is shared. Nearly 30% of the planners indicated that clients don’t come back to seek a review.

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Arun Kumar Sahoo, Managing Partner, MintBox Advisory LLP, says, “Many times investors come with the notion that financial advice is a one-time exercise. In reality, it is a continuous process.” If you think the financial plan designed initially will set you up for life, you are gravely mistaken. Don’t put off the annual review for later. A lot can happen over the course of a year. Personal circumstances can change. You may change jobs, or lose one. You may earn a sizeable hike in your compensation package or suffer a correction. The birth of an unplanned child or a prolonged illness in your family may stretch your income. Tax rules may get revised. A sudden market opportunity may arise.

Some of these events might require corrective actions in your financial plan on the fly. Your planner will suggest timely adjustments to make sure you don’t stray far from your destination. Billimoria of Dilzer Consultants asserts, “We insist on an annual risk profiling to make sure that the impact of any life changes on clients’ behaviour gets captured at the right time.” Don’t put off this activity simply to avoid paying a fee. It will cost you more in missed opportunities and gaps in corpus.

Do not haggle over planner’s fee
Quality advice that helps you set a clear roadmap for your finances deserves fair compensation.
Indians have a tendency to push back when paying for financial advice. One-third of the financial planners who were surveyed have indicated dithering by clients over fee. They continue to receive calls from people seeking financial advice, but not willing to fork out a fee. Some take professional advice, but refuse to pay for it. Even the more well-established planners face the occasional wrangling over payment. A part of the problem is that many still view financial advisers with suspicion. “The perception is that advisers are only interested in earning fat commissions and don’t work in the interest of investors,” says a financial planner. There are advisers who work on commissions and those who work on fees only. In both communities, you can find extremely capable financial advisers with high integrity. Due to a few bad apples, all advisers should not be painted with the same brush.

Q. How much do clients wrangle over the advisory fee?

One-third of the respondents face a high degree of haggling over fees.

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Note:Ranked on a scale of 1 to 5 (1 is lowest and 5 is highest)

“Some clients believe in the do-it-yourself approach,” says another planner. With the emergence of direct plans and proliferation of execution platforms, many investors feel confident enough to handle all aspects of their finances. However, quality advice goes beyond choosing the best mutual funds or insurance plans. A professional outlines a clear roadmap for your goals and provides hand-holding when market conditions or personal circumstances prove unnerving. This expertise deserves compensation. If you want a free lunch, be ready for an upset stomach. Says Sadagopan: “Even in the gymnasium, you need a trainer’s guidance. It can be dangerous to exercise on your own.”

Involve your family in financial planning
All stakeholders should be involved in the planning exercise.
The biggest gripe that financial planners have is that the family is often missing from the discussions. Nearly six out of 10 financial advisers in the survey singled this out as a concern. Most ranked the level of engagement of the family low on a scale of 1 to 5. Typically, one of the partners, usually the man, drives the discussions.

Not involving the family in the financial planning exercise is a misstep, assert planners. It is best to take everyone along. Almost half of the couples prefer not to have the other involved to avoid squabbles arising from differences in opinions, points out Dev Ashish. But aspirations of all family members are tied to the household finances. When discussing key financial goals, inputs of family can help in moulding the financial plan. An overseas tour may be important for one partner, even as the spouse dreams of a bigger car. Don’t resist bringing your family on board out of fear of disagreements. Let frank discussions bring out any conflicts at the planning stage itself rather than potentially causing hurt or resentment later. Even if the partner is not actively involved, planners suggest he or she at least attend the meetings to understand the direction or thrust of planning.

Q. What is the level of engagement with client’s family/ spouse?
Nearly 66% planners rue lack of participation by clients’ families in discussions.

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Note:Ranked on a scale of 1 to 5 (1 is lowest and 5 is highest)

“The women of the house are often reticent. They are either not interested in finances or too busy for money talk,” rues Sadagopan. Don’t worry if your knowledge about investments and finances is limited. Billimoria feels a perceived lack of understanding should not deter women from getting involved. “No question is stupid or wrong. Women also offer practical solutions,” she says.

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