All financial advisors tell you that they are good. But are they? How can you evaluate their claims? Read on! In an exclusive interview with Pooja Chopra Goel of Myiris.com, Priya Ramarao, CFP CM, InvestmentYogi explores the business of financial planning and how investors can use it to their advantage.
What led you to opt for a certified financial planner (CFP) course and to choose a career in financial planning?
I previously worked in branch operations division in personal loans business. There, I used to interact daily with lot of customers coming from different walks of life, i.e. self-employed, salaried professionals, pensioners etc. I realized that there was a huge gap between what the customer needed and what was being offered to him. There are a vast majority of people who do not have access to personal finance advisory services. As it was always in my nature to help people, I felt I could do more than just selling loans. That`s how I got interest to enroll myself into CFP course. I obtained the certificate and now am working for InvestmentYogi.
How does a financial advisor make his living and is there any conflict of interest between him and his customers?
Trust is the most important element in an advisor-client relationship. An IFA must disclose any business agreement / compensation arrangements between the IFA and a 3rd party (which may be an AMC, a life insurer, and/or broker) to the client at the beginning of the agreement itself, to avoid conflicts of interest.
When someone approaches a financial advisor for the first time, what are the questions that they should ask?
When one approaches an IFA for the first time, the important points to note are the professional qualifications of the IFA (whether he/she is a certified to handle an individual`s personal finances) and the experience in handling client portfolios. It will help if an IFA can provide references of clients he/she has provided financial planning service to. Another important aspect to check is whether the IFA is making the client feel comfortable during the meeting; an ideal financial planner is one who has the client`s interests in mind.
There is a view that no loads and reduction in upfront commissions have really hurt small IFAs and the retail business. Is this a view that you also share?
At the face of it, the moves proposed to remove loads and upfront commission may appear to benefit the investor. However, we should not forget that the majority of the mutual fund penetration has been through the MF agents/advisors and will continue to do so. Mutual fund is a product that necessitates quality advice. We need to strike a balance between quality advice provided by agents/advisors and their compensation arrangement. The current trail commission is too low a motivation to bring in new business. One way to do this is to provide quality training in financial products to the agent/advisors. NISM (National Institute of Securities Markets; established by SEBI and FPSB, India) has already acted in this direction and have come out with a unique certification program for small IFAs called `Certification Examination for Financial Advisors`. It is expected to serve as skill assessment mechanism as well as help facilitate the augmentation for competent financial advisors in the country
Out of the several changes that advisors now have to face, which one is a more difficult one to cope with?
Among the major changes that have been brought into force, such as ban on entry loads, investor complaint disclosure facility (on fund`s website), ASBA facility, DTC implementation from April 2012, and uniform exit loads - the ban on entry loads for new and existing mutual fund schemes may undoubtedly be the difficult one to cope with for small IFAs. However, there are other ways in which an IFA can earn his due, such as, charging a flat fee for his service. But for this, they need to broaden their products & services basket and upgrade their skills and knowledge for value-added services.
What are your plans for 2011 in terms of product portfolio, new services, client segments etc?
InvestmentYogi plans to expand its services both online and offline. We will give users a 360 degree view of their finances and continue rolling out new and innovative products online. Our goal is that over the next 5 years, we will help over 2 million middle class Indians save by helping them make smart investment choices.
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?
Although there is no doubt about India`s long term growth and the fantastic performance of Indian stock market over the last couple of years, the current market is still not completely immune from future global shocks. The market has been scaling new heights with FIIs(foreign institutional investors) push and investors should be cautious and understand that once there appears any weak global economy outlook or even a stock market correction, as is the case now, FIIs will take the first flight, pulling the market down along with the investor`s hard-earned money. Therefore, it is wise to diversify your investments across asset classes always to reduce the risk of loss from any one asset class.
Is there anything else you would like to share with our readers?
Most people don`t plan for the future. Not that everyone have the same amount of goals to be seriously sitting down and planning for the years ahead. But having a plan in place atleast with respect to personal insurance will remove half the worry and stress that a working individual goes through in his/her life. Also, it is important that investors have basic level of financial knowledge and not rely totally on the friends, relatives and IFAs for finance related advice, as each person has his/her unique risk appetite, investment preferences, and therefore, the advice on where to invest cannot be a generalized one. Investors can make us of investor camps/workshops, online resources to improve their financial literacy.