Personal Finance and Presidents

A break from serious personal finance discussions... actually this one's just as serious. If you were to appoint a Financial Manager for yourself and if you were privy to his personal finance information regarding his assets and liabilities, who would you choose?

One, who has made the wise decisions, saved money for retirement or a raining day and has no liabilities or one who has never invested in the stock market, has money lying around in a savings account and yet pays interest on credit card debts amounting to a hundred thousand dollars? Will your decision change if you got to know that the net worth of the former is just about 1/10^th that of the latter? And what if the latter has a higher net worth owing to inheritance rather than self-made like the former?

This should be the question in the minds of millions of Americans who go to poll this year. Are you willing to choose for your country what you would choose for yourself?

And if you still had any doubt… the former is Barack Obama and the latter is John McCain.

Personal Financial Advisor - Part B

This is the second in the series on personal financial advisor. In part A, we discussed questions relating to the who and what of a financial advisor. Today's post will aim to discuss your role and how to choose a financial advisor.

What is your role when you have a financial advisor?
Well, this again depends on what role you want to play. While at the two extremes you could passively follow every advice given by your FA or choose to use your FA for just the documentation, what I would suggest is taking the mid way. Do not completely trust your FA to make decisions for you because you know your appetite for risk and capacity to save, not your FA. Do not dismiss your FA's recommendations, because the person talking to you has far more experience in this industry than you do. The underlined statement is 'this is your money' and you alone have to put in the time and effort to make it work for you.

All this said, if you are wondering about my first statement in the beginning of this series about how the lack of time deters people from active investing... Think about it... Is it really the lack of time or the lack of will? A trusted FA will make this process easier for you, will streamline the process so that you don't have to run from pillar to post to put your money in the right place... but the buck stops here... making the decision and signing on the dotted line has to come from you.

How to choose a financial advisor?
There are no hard and fast rules in choosing a FA. At the end of the day, despite having the right qualifications, the chemistry between the two of you may not work out. Personally, I have changed three FAs before discovering our current one. When my husband and I met her for the first time, we really hit it off. What impressed us the most was her knowledge on the subject and her absolute professionalism. In our experience with numerous other FAs, we've always found ourselves calling the shots and expecting the FA to just take notes. For once, we sat up to listen to her and even come back with a revised allocation.

Something I feel is important while choosing a FA, is understanding the investment options that the FA has to offer. Some FAs may only offer mutual funds while another may be specialized in insurance products. Choose a FA who is able to plan your entire portfolio, otherwise you'll find yourself dealing with 2-3 people for different products or may even end up heaping your investments in one asset category alone.

The most important quality to look out for in a FA is undoubtedly his knowledge in the field. But then you can't test this unless you know something about the field yourself. The second most important quality is integrity. This one is easier said than done. It takes a longer time to test integrity than to test knowledge and also has a higher impact. Don't ignore the clues of an unprofessional FA - recommends high commission products, personally uses one product but recommends another one for you, messes up documents, does not provide you with post investment updates, does not follow up on premium dues, ignores you once the transaction is complete.Nonetheless, at the end of the day it may be easy to blame your FA for a wrong turn in your investments, be aware that the loss is however yours alone.

Disclosure: I am not a financial advisor by profession or by practice.

Personal Financial Advisor - Part A

Something that deters most of us from diving into the world of stock markets and investments is the lack of time to do the research and the hassles and the paperwork involved in carrying out the investments. Something that I personally think helps is having a financial planner/ financial advisor/ relationship manager.Being a wide and an important subject, I plan to spread the discussion over two posts. In this post, we will answer the questions - who is a financial advisor and what does he do?

Who is a financial advisor (FA)?
We are talking about a person working for a bank or a brokerage firm and providing general advice on investments and carrying out client’s instructions. While there are people who work as independent FAs, they are generally used by high net worth individuals and by people who know such a trustworthy person. It’s less risky to go with someone working for a bank or brokerage firm since at the end of the day the firm is responsible for the employee’s fraudulent actions.
While some of them work for a fixed fee based on the number of hours put in for a client, a majority of them work on commission basis.

What does a financial advisor do?
Well, what a FA does depends on what you want him to do. If you are among those people who have absolutely no clue what to do with your money, then a FA is really the best place to start. He would typically start by understanding your monthly capacity for saving and then provide you with the details of the minimum instruments you must be invested in such as insurance, tax saving instruments, mutual funds, etc.

Can you take this advice blindly? NO. I wouldn’t rule out the possibility of the FA recommending a product for which he receives a higher commission. The best thing would be to write all this down and ask for some more time to do your research on Google (not another FA who would be thinking on the same lines as the first one). While typically he might advise you on well-known products, it'll save you a lot of headache later.

For example, the first time I came in contact with what we today call a financial advisor was more three years back when I got my first pay check. He was a 'family friend' who was sent by my dad to take out an insurance policy for me. The product he recommended was a money back policy with a huge annual premium and pittance in terms of life cover and of course the assured periodic returns. After paying three huge premiums I had started considering life insurance policies as unnecessary considering the huge premiums and the negative returns. This was until I met my current FA who brought to light the fact the there existed other far far cheaper products (term policy) which though served the same purpose did not offer the high commission that a money back or endowment policy offered to the agent. I was duped and since getting out of the policy now would mean losing far more money, I have to choose to continue contributing to the plan and remind myself every time do my own research.

If you are among those people who like to make their own research and need an someone to just carry out your instructions, then who better than a FA. Papers and filling the same details over and over again can be tedious. A diligent FA who knows his documents, gets the required information from you, fills all the forms, collects your signature,dispatches them correctly and follows up on statements post the investment would be a real asset to you! As a word of caution, don't forget to verify all the information before you sign on the dotted line!

After being duped the first time, the only person I trust to make my financial decisions is my husband (not even my parents). Today before making an investment, we do our research, talk to people, consult our FA, sit on it for sometime and then take the plunge. The other part of the hard work is done by our FA who meticulously sorts our documents, dispatches them, promptly follows up and keeps us up-to-date.

In part B of this series, we will answer questions such as - what is your role when you have a financial advisor and how to choose a financial advisor?

PS: Wherever I have mentioned 'he' in the general sense, it implies 'he/she'. My FA happens to be a woman, so no case of gender bias there.

Disclosure: I am not a financial advisor by profession or by practice.

Back to blogging

I've been on a long vacation both from blogging and from work for about a year now. During this period I’ve gotten married, traveled to the other side of the globe and relocated back to India (to a city I’ve never been to before). The good news is I’m back and hope to continue writing more often on personal finance in India.

Before you continue reading, do remember that this blog is for the average income professional in India and not particularly aimed at the aggressive investor. If you’ve just started working or have been working for a few years now and haven’t particularly thought about saving, then this blog will help you to get started and assist you on the way.