Posts Tagged financialplanning

Why you don’t need a financial planner

I have nothing personally against financial planners. The few that I have met are amiable fellows. I also don’t say you necessarily don’t need one. Your circumstances might demand that you might need financial planning services. Read on to find out more about it.

Accountability

The results of many financial planning services will be visible only in the long term. Hence it is difficult to choose a financial planner based on performance. Financial planners themselves don’t come up with any metric against which they can be judged and held accountable. In such a market, the following traits will make successful financial planners and you are more likely to go to and trust one of them:

1. Marketing: A financial planner who markets and sells himself well will get more business. They will seem trustworthy, professional and reachable. They build a brand for themselves which you are happy to associate yourselves with. Read any sales, marketing and branding book for details, but surely, none of these techniques concentrate on improving performance or quality of service.

2. Persuasion: Once you consult a financial planner, his manner of speech, the confidence he exudes and general ambience of the environment come into picture. If the overall experience was convincing, you are not likely to take a second opinion and you will choose this same financial planner the next time you need advice. Note that this also has nothing to do with quality of service or prudence of following the advice.

As there is currently no way to hold financial planners accountable as to the quality of advice, the above described qualities are the secrets to success for any financial planner. None of them bode very well for you. This brings us to our next point:

Trust

Even if you define a good financial planner and manage to find such a person, how much can you trust them? That he was really a good financial planner you will know only, say, 40 years later. Remember it is your own financial future that you are entrusting to them. If the advice was wrong, the planner can shrug his shoulders. But you will know about it, 40 years later when you are truly and royally screwed. The solution: backup financial planner’s advice with your own research. This brings up the next point:

Cost

Given the limitations of a financial planner and inevitability of own research, is the financial planner worth the cost? Can he be replaced with more research? Or do you think you will take financial planning service to validate your own findings and give direction to further research?

Notable Exceptions

Now that I have made all financial planners call up Chhota Shakeel to cut my ticket, let me also mention these notable exceptions:

1. Sudden windfalls

Your grandma left you a fortune, you found potfuls of gold coins when digging a well in your backyard, you won “Kaun Banega 3 Crorepati” when your annual income is less than or much less than 50 lakhs a year, etc. You really, badly need a financial advisor. Why?

a) You are not used to handling so much of money. All your knowledge about managing money is for the amount of money you normally deal with. It maybe that those ideas hold for the windfall money, but maybe they are not.

b) You are too excited to make good decisions yourselves.

c) All your “friends” are asking favours of you. If you have a financial planner, you could say : “well, I’d love to, but you know my financial planner is a tyrant and he just doesn’t let me”.

d) Taxes. Some taxes are pre-deducted as TDS before you get your windfall. Some are not. Some taxes are due immediately, some are due before the financial year ends. Installments of some taxes might be due on next advance tax deadline. You have no idea. There may or may not be ways to save such taxes. A financial planner is indispensable here.

Even after I have told you, most people in these circumstances won’t use a financial planner. As my second point above says, you are too excited to make good decisions. Contacting a financial planner is a good decision that you will likely not make.

2. Short term debt management

You have developed a habit of missing credit card payments and are stuck in the vicious circle of debt. Or any other short term debt which you have unwittingly not paid for a long term. The financial advisor can let you know about ways to get you out of the cycle. This might include alternate avenues of credit, advice to lower expenses, tax-efficient ways to sell-off/mortgage your possessions and many more. Since it is short term debt management, you can objectively check the quality of advice given by the financial planner in a short span of time.

Note that I don’t include long term debt in this, because long term debt is like any other financial planning which you should do yourselves like I pointed out in the earlier part of this article.

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