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  • Writer's pictureAkshay Nayak

What Financial Planners Are, And What They Are Not

Those of us who seek clarity on aspects of our finances may choose to work with financial planners. The commencement of a financial planning engagement comes with a lot of hope and expectation. But there are times when we may wish to end our relationship with our planner. The most common reason being that our planner's performance has not lived up to our expectations. Before coming to such conclusions, we must assess whether we set the right expectations from our planners.

Therefore, today I'm going to talk about the nature of services provided by financial planners. I will also talk about the way most competent planners approach financial planning. This would allow us to enter an engagement with the right expectations.

Firstly, as prospective clients we must understand that financial planners are not a one stop solution. They are mentors and guides who objectively understand our needs. They then map out a course for us to follow in order for us to achieve our financial goals and deal with our financial issues. But we still have to follow the course set for us in a disciplined manner. Only then would we achieve our financial goals and deal with our financial issues. This clearly means that the success of an engagement is built on a shared responsibility between clients and advisors.

We always assume that we approach financial planners for an instant impact on our investment performance. But in truth, it is quite unrealistic to expect planners to produce instant results. Planners are not paid for recommending investment products and producing returns for clients. A planner's job is to help clients develop money in light of the realities they face. This means that advisors are actually paid for their pragmatism. They are paid for inducing lasting changes in their clients' financial situations. This requires the planner to have a holistic understanding of the personalities of their clients. And this takes time and constant effort from both parties involved.

Hence, these changes can never translate into positive results in the form of investment returns overnight. We must therefore place complete trust in our planners. We must trust the process that they put in place for our money. We must then follow the process consistently over a period of time. Only then can the effectiveness of the process and the competence of the planner be judged.

Some of us fail to appreciate planners who focus on managing risk rather than generating returns. The most competent planners follow a risk centric approach when imparting advice. They realise that being cognisant of risk and managing it effectively is the foundation of sustained investment success. A planner's job is to ensure that clients avoid making financial blunders. They must always see to it that clients have enough money to meet their needs. A competent advisor would achieve this by aligning a client's investment actions with their personalities. Therefore there may be times when our planners ask us not to take a particular risk. We must realise that it may be a risk that is too big for us to digest.

We sometimes approach financial planners for validation of the way we manage our money. It is completely fine to do this. But we must realise that validation does not mean blind acceptance of our ideas by our by our planners. Any competent advisor would have a skeptical bent of mind. They would only validate a particular idea when there is a fair degree of credibility backing it. Therefore we have to be okay with the fact that seeking validation would mean some of our methods may be refuted from time to time. This would mainly be due to our methods not being practical.

To sum up, the premise within which financial planning is carried out today has changed. Comprehensive financial planning is now at core of the exercise. This includes every major aspect of an individual's finances. Investment management and product selection is just one part of it. This means that our expectations from financial must also change. The money management process our planners develop for us is the biggest mark of their calibre. Our planners must be able to give us a logical action plan to help us achieve our goals. From there, the focus shifts to us being able to consistently execute the plan. Keeping these pointers in mind would allow us to set the right expectations from our planners. This would make our experience of working with financial planners more fulfilling.

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