rediff.com

NewsApp (Free)

Read news as it happens
Download NewsApp

Available on  

Rediff News  All News 
Rediff.com  » Getahead » Exposed: 4 false claims made by financial planners

Exposed: 4 false claims made by financial planners

September 22, 2016 09:33 IST

Exposed: 4 false claims made by financial planners

Some planners sell dreams and deliver nightmares. So, look before you leap, says Ramalingam K!

The buyer needs a hundred eyes, the seller but one.' This proverb cannot be over-emphasised as a buyer needs to be on guard whenever s/he chooses to purchase any goods or services.

Buyer beware

Financial planners are here to provide professional assistance to investors, whereby the investors can have the best deal for the money staked by them. There are certain pitfalls that manifest themselves while the assistance of financial planners is sought and the buyer should always be aware of these while soliciting such services.

What are the pitfalls, which one must be aware of and guard against?

There are four improbable claims, which are often made by financial planners. Investors would be naive if they do not use their discretion while considering these claims, often made but found to be Utopian in nature.

Claim #1: Comprehensive financial plan for free

Nothing in this world is absolutely free. One has to pay for even pure air and water nowadays. It is obvious that drawing up a comprehensive financial plan takes a lot of professional acumen, time and energy to build up.

Websites offer to draw up free financial plans but they can never match the quality of plans drawn up by professional planners.

A good plan needs multiple sessions with the client for understanding their requirement, their current cash position, debts, investments, insurance, retirement, education, tax, estate and more.

A comprehensive plan will also detail the timeline to accomplish the project and a lot of these projects could take years to be accomplished. Truly comprehensive plans can take days and hours to be built and fine-tuned.

Investors can always get a free plan drawn up from a web portal offering such services, but it is only the professional financial planners who can provide a comprehensive workable plan and such a plan comes at a cost.

Claim # 2: One wonder-product to solve all problems

Some advisers are agents for certain types of investment products. They usually try to sell their product to all their clients whether they require it or not.

There are insurance agents who often double up as financial advisers and try to sell annuity policy to all their clients irrespective of the fact that the product might not fit in to the needs of the client.

The financial plan requirement for each client is different and there can never be one product that fulfills the need of everybody. This is why a professional financial planner is in the best position to gauge the need of the client and deliver accordingly.

Claim # 3: Hidden costs that diminish returns

It is always wise to ask the financial adviser for the actual cost that you are incurring. More often than not the adviser will state the cost, which is reflected in the statement.

The hidden costs are rarely disclosed.

It is most likely that the investment does have hidden costs that are not apparent upfront.

If we take the instance of mutual funds, on an average mutual funds have an internal cost of 1.3 per cent as per the findings by Investopedia. This cost certainly affects your long-term returns.

It is necessary to choose a financial adviser who is transparent in her/his dealings and works tirelessly to bring down such costs to the maximum extent possible.

Claim # 4: One unique product that no one else has

One often comes across investment shops which tout their one unique product which is actually a precursor to the market. It actually gauges the mood of the market and acts on it.

The unique fund as promoted can never be immune to the cyclical fluctuations and no one can always consistently deliver only gains. Just as there are good managers, there are also market cycles and fluctuations.

It is therefore in the best interest of the investor that they distribute their investment with different managers instead of staking the entire portfolio with one manager.

A good financial planner will ensure that the investor's funds are placed with different fund managers so that the best returns can be assured and if necessary there is sufficient flexibility to move around the funds if need be.

Conclusion

Beware, some planners will sell a dream and deliver a nightmare. It is better to look before you leap.

Photograph: uncoolbob/Wikimedia Commons

Ramalingam K, CFP CM is the Chief Financial Planner at holisticinvestment.in, a leading financial planning and wealth management company

Ramalingam K