The name's Bond! Plain, vanilla, old-fashioned bond. Or trust.
You have worked hard to build yourself a plump financial portfolio, the least you can demand is 'trust' from the person or organisation you assign to manage your wealth. Moreover as a busy professional, you might be unable to devote the kind of time needed to take care of the money you earn and would, ideally, like to outsource your money management to a trusted person or organisation. So where do you go?
India is still at a stage where the wealth manager is not necessarily a certified entity and the term itself is used rather loosely. With banks and distribution houses, insurance agents, mutual fund distributors and chartered accountants liberally calling themselves 'wealth managers', there is a mindboggling array of people to choose from.
So, it becomes imperative to first identify the type of people you can sign on as your wealth managers.
Manager Conundrum
There are wealth managers in banks who will eagerly do your financial planning if you fall in the HNI (high net worth individual) block. The banks assign a relationship manager (RM) to you, who is expected to manage the relationship with you by proactively using his knowledge to tailor unique and innovative financial solutions that will create value.
However, he is restricted by the number of distribution tie-ups he has -- not all of them can sell all products. Besides, as banks and distribution houses increasingly compete with each other with a similar set of products, an RM may end up just pushing his own brands instead of delivering long-term advice.
The high churn among RMs in banks often leads to sudden breaks in "relationship" building and a whole lot of miscommunication between the customer and the bank ensues.
Take the case of Piyush Singhal, 40, managing director at a Delhi-based software firm, Infoedge Solutions. In 2001, an RM from a prominent MNC bank offered to take stock of his investments. Singhal was advised to invest in 15 debt mutual funds (MFs).
Within a year he had burnt his fingers and exited when his portfolio crashed. Singhal held on to the bank, but this time opted for another RM. He then fell prey to the New Fund Offer (NFO) churn game that banks play with their HNI clients. From 2003 to 2004, Singhal invested in NFOs recommended by the bank.
"There was a 50 per cent churn within the very first year, and there was at least one instance when we sold one fund and bought it back within a month," he says.
When Singhal looked at his return, net of the short-term capital gains tax and commissions, he found that he had barely made 8 per cent in a market that topped 40 per cent.
So, why is Singhal still with the bank? "They are all the same," he says. His strategy now is to diversify across banks and he has signed up with another bank a year back.
Other 'Wealth Managers'
Then there is everyone else keen on getting a slice of your pie with assurances to make you richer than you are today. Your friendly neighbours who sell insurance and mutual funds may not always be the right source.
After all, their interests in selling you a particular product is the commission that they earn through selling you a financial product. Besides, your accountant or stockbroker may not adopt a holistic approach to all your financial planning needs.
If you strictly go by the book and look for a qualification that befits a wealth manager, then you should go to the 150-odd certified financial planners (CFPs) who have been certified by the Financial Planning Standards Board (FPSB), India.
Remember that a true wealth manager uses the financial planning process to help you figure out how to meet your life goals through the proper management of your financial resources.
Once you have identified the category of your wealth manager, it boils down to choosing one. Here are nine questions to ask before you hand over that cheque. And remember to keep asking as you go along.
What is your experience and qualifications?
Wealth management requires hands-on experience and a strong technical understanding of topics such as personal tax planning, insurance, investments, retirement planning and estate planning and, how a recommendation in one area can affect the others.
Ask the planner what his qualifications are to offer financial advice and if, in fact, he is a qualified planner. Ask what training he has successfully completed. Ask what steps he takes to keep up with changes and developments in the financial planning field.
Ask whether he holds any professional credentials including the Certified Financial Planner certification, which is recognised internationally as the mark of a competent, ethical, professional financial planner.
Find out how long the planner has been in practice and the number and types of companies with which he has been associated. Ask about work experience and its relation to current practice. Choose a financial planner who has experience counselling individuals on their financial needs.
What value-added services do you provide?
Ideally, your manager should offer complete financial planning. He should be able to give you advice on equity investment, debt, commodities, art, insurance, international investment, which home loans to take and why, tax planning, estate planning, filing tax returns, superannuation, real estate, and do a cash-flow analysis.
If you don't see a mix of different asset classes, it is a red flag. Diversification is the essence of wealth management. Apart from regular services, it would be nice to get some more value out of your advisor to update your own knowledge.
Look for the factors that differentiate one wealth advisor from the others. Check whether your advisor organises any client education seminars, gives you free research
