Not everyone is a financial planner. Ranjeet Mudholkar, principal adviser to the Financial Planning Standards Board India, tells why he thinks investors might be better off with certified financial planners.
There is a perception that the Certified Financial Planner (CFP) course is not rigorous enough.
I disagree. Our curriculum matches that of CFPs abroad. One has to clear five examinations and work in this field for three to six years depending on one’s previous qualifications. Even after the certification, it is mandatory that CFPs take various tests so that they get updated about the new happenings in this field. Yes, there are some concerns about non-graduates applying for certification, but this should change eventually.
All CFPs pass the same exams. How is an investor to choose one over another?
There are several ways to evaluate a financial planner. Of course, he must be a CFP. In addition, investors must ask for references and ensure that the planner has not faced any disciplinary action or been involved in any litigation. Good financial advisers should always be accessible, maintain confidentiality and ask detailed questions about the lifestyle and habits of the clients.
Is it possible for a client to quantify the success of a CFP’s strategy?
No, you can’t claim that your neighbour’s planner is better because his strategy generated 19% returns whereas your plan earned only 13%. Outcomes are always customised according to the profile of different investors. Having said that, one quarter is enough time to assess whether or not the planner is doing a good job.
Isn’t a financial adviser too costly for the size of an average middle-class Indian’s portfolio?
It’s important for anyone who wants professional help with his portfolio. People should understand that the size of the portfolio is not the sole factor that determines the cost of a planner’s services. There are other aspects to consider such as the intricacies of the portfolio, the assets in which investment is recommended, the number of transactions and revisions. It is when people understand the benefits of a CFP that they will be willing to pay for their services.
How do I know that the CFP is not recommending a product for higher commissions?
According to the new rules laid out by Sebi, from 1 August, advisers will have to disclose the commission paid by the AMC of a mutual fund. The entry load for mutual funds has also been removed. These two rules should make the remuneration structure more transparent. The Insurance Regulatory and Development Authority has also said that investors must be informed about the commissions on Ulips. A CFP is mandated to follow these instructions, so any conflict of interest should become apparent.
Is non-disclosure of commissions a valid ground for complaint against a CFP?
Yes, non-disclosure of commissions is against the rules and is a valid charge. For this, or any other complaint, investors can write to us and the complaint will be addressed by our board of professional review. Depending on the case, the punishment can range from a reprimand to cancelling the CFP certification.
