Selecting a financial planner can be an intimidating process. The reason you`ve decided to hire a professional is usually because you need clarification on financial issues; so how do know what questions to ask? In an exclusive interview with Pooja Chopra Goel of Myiris.com, Amit S. Luharuka, Managing Partner, Credence Financial Advisors offers some thoughts on what makes a great financial planner and gives ideas for questions you should ask.
What led you to choose financial planning as a career? How has your journey been so far?
The constant learning, lots of reading and meeting new people. If one does a good job, the outcome makes a difference to a large number of people. Frankly, I cannot think of think of doing anything else. The journey so far has been very rewarding but challenging.
With so many sources of information out there and access to the markets through internet, why does a person need a financial advisor?
The role of a financial advisor is akin to a family physician. A financial advisor just like a family physician acts like your `financial doctor`. Today, people are spoilt for choice in just about everywhere they want to spend or invest their money. However, more choices does not automatically lead to better decision as the consumer may not be equipped to understand the complexities inherent in the choice of products available. A financial advisor adds value by acting like some kind of a `filtering mechanism` i.e. to separate out the relevant products from the avalanche of choices available to him, on the basis of his unique financial needs. A good planner can keep people from making serious mistakes with their money and may also help them overcome pre-conceived ideas about money.
When someone approaches a financial advisor for the first time, what are the questions that they should ask?
I think it`s very important for the investor to be aware of the financial advisor`s professional qualifications and experience. They should inquire about the range of services or areas in which the advisor is capable and qualified to handle their financial matters. Moreover, it would be really useful if they can get independent & unbiased opinion about the advisor`s experience in handling portfolios from existing set of clients since the financial advisor should be a person of integrity & trust and one who has his client`s interest in mind in all his decisions.
Describe your approach with new clients? What do you with new clients as you meet with them for the first time that others can learn from?
Our approach is to try understanding their needs and how we will be able to plug in gaps in their financial lives. Always remember to cater to clients` requirements rather than try and sell products. Have a clear philosophy of client`s interest first and thereby gain their trust. Client`s especially new ones will only share information with you if they trust you completely; it is important to build that trust first rather than focus getting only the information and live up to it through high service levels.
What is the one financial mistake nearly everyone makes?
Money lying idle in cash or saving banks account generating negative returns. This is one of the biggest financial mistakes which individuals make by ignoring the effect of inflation on the money invested. Insufficient funds in the savings bank account for emergency is another critical mistake everyone makes. Today, individuals buy insurance as investment which again may not be most appropriate. Clubbing investment with insurance involves binding oneself to pay big amount of regular insurance premium leading to a fixed liability.
What is one misconception about financial advisors you would want to refute?
That they are all the same and represent only the manufacturers of financial products instead of the investors. Believe me, there are lots and lots of differences between the different types of planners.
Out of the several changes that advisors now have to face, which one is a more difficult one to cope with?
Clearly it`s the ban on entry loads in mutual funds which has been the most difficult to cope up with. Although it`s an investor friendly move by the regulator, yet the manner in which this was implemented did not give sufficient time to many IFAs to cope with the drastic changes to their business model.
How would you suggest a common investor ensure that their accounts are protected and not invested in dubious instruments?
Don`t invest in unregulated financial products. What I have found is that over a lifetime, people who keep things simple will make the most money. It`s that simple. And, yes, find an unbiased fee based financial advisor and spend an hour with this person every 6 months.
What three books related to personal finance would you recommend every person read and why?
Although, there are good many books related to personal finance available in the market, I would like to mention only the names of some of the books written in the Indian context and written by persons who are themselves involved in some or the other capacity in enhancing investor awareness about issues related to personal finance. These books are quite simple in their approach towards personal finance and investors will benefit a lot after reading them as these books act like family guides to managing money.
> Retire Rich: P. V. Subramanyan
> Seven steps to Financial Freedom: Monica Halan
> Personal Finance: Ashu Dutt
> Stocks to Riches: Parag Parikh
What is your take on current market situation? What are the key factors that will drive the stock markets in 2011? What is your advice to retail investors now?
The markets have always been and will always be at their volatile best. At any point of time, there will always be innumerable variables at work both international and domestic that will exert their influence over the financial markets and thus affect various asset classes differently. At the moment, we are probably somewhere in a situation where markets are likely to remain range bound, unlikely to move in a significant manner either way. It will create a consolidation and then depending upon liquidity or results it would get a direction.
Is there anything else you would like to share with our readers?
There is an adage which says, ``God helps those who help themselves`` and this adage is most relevant to our investments. If we do not have any action plans in place and just want to try our luck in the equities, I would term it as sheer madness. But all of us have this gambling instinct hard wired in our psyche from birth. So, one thing I tell everyone who still want to speculate in the markets is to have a small portion of your portfolio for adventure in the markets. But also have a well thought out asset allocation strategy for the major part of your portfolio in sync with your goals and objectives in life. Please do not let your innocent family members fall victim to your misadventures in the stock markets. Stock market can be an ideal vehicle towards wealth creation for meeting future financial goals if it`s a part of your overall asset allocation and invested for the long term. However, they can be really hazardous to your portfolio if you venture into its treacherous waters without any strategy in place. Take some time off from the daily grind and try to learn a thing or two about personal financial planning. Sometimes it can be life saving!!