How to Choose a Financial Analyst: A Simple Guide

Efficiently managing your finances requires a lot of time and in-depth knowledge. Doing it yourself is always an option; however, when it comes to your hard-earned money, it seems too big a risk. Many are short on time and lack the expertise to create a suitable plan for their financial needs.

Financial planners can help in managing your immediate and long-term goals. Consider the following factors if you are wondering how to choose a financial planner.

There are certain essential things you must keep in mind when trying to find the right financial planner for your needs. They are as follows-

• Consider Their Experience: When choosing a financial advisor, you should consider their professional background and experience. It is necessary for an advisor to have adequate experience in dealing with clients and working in the financial marketplace. Since your advisor will handle your money, you may ask them to show how they deal with prospective clients. You can look for advisors who have worked in the market through multiple economic cycles. When your advisor has gone through different phases of learning experiences, they can guide you in the best possible way. If they have the latest certifications in the field of financial planning along with formal education, you can consider it a definite plus.
• Check if They Have Proper Licenses: In some scenarios, financial planners have the license to deal in a specific category of financial instruments, which they can then sell to you. For example, if you need to manage your finances, licensed professionals like Certified Financial Planners (CFPs) and Chartered Accountants (CAs) can help you to do it well. Thus, you should check your prospective financial advisor's license to ensure you are dealing with a certified professional.
• Clients Managed by Your Planner: Since there are various types of financial advisors, each class has a client base in which they specialise. Expert advisors usually create a niche for themselves and customise their solutions according to that. For instance, a financial planner who works with salaried individuals will understand them better and will be able to provide them with better guidance on current finances. On the other hand, a professional retirement planner will know the importance of factoring in steady cash flow in their client's portfolio. One way to ensure your planner deals with a client base with a similar life cycle is through referrals from known individuals. Moreover, you can also check the old records of your advisor and their current and previous clients to be sure.
• Communication Skills of Your Advisor: The financial world is way complicated as it is, and the reason people take help from professionals is so that they do not have to deal with complex jargon. Good financial advisors shall be able to build trust with their clients. For that, they need to communicate with clients in a language that simplifies every aspect of the plan. Along with that, the expert should also be able to remove any wrong preconceived notions that you have in an unbiased way. Checking your financial advisor's ability to handle objections is an excellent way to test their communication skills.
• Professional Fee of Advisor: The charges of an advisor will depend on various aspects, including the time an analyst dedicates to their client. It also depends on an advisor's service quality, experience and level of expertise.

Understanding your planners' fee structure and determining how it aligns with your goals is good. Just because someone charges an exorbitant fee does not mean that their services are top-notch. Similarly, a low-fee charging planner may not be able to provide you with the quality of service you hope to receive. This is why it is best to have an open discussion with your advisor about their charges at the very beginning of your relationship. It will clearly show both sides' expectations for each party. Now that you know the things you should consider while selecting a financial analyst.

You should know about the services of different financial analysts and planners before deciding who you should pick for your needs.

• Financial analysts fall into 2 broad categories: buy-side analysts and sell-side analysts.

  • Buy-Side Analysts- These people develop investment strategies for companies with a lot of money.
  • Sell-Side Analysts- Experts from this category advise financial services sales agents who sell bonds, stocks and other services.

Some analysts are independent of these two categories and work in business media or research houses.

• Financial planners also have the following types based on the sectors in which they specialise.

  • Fund Managers- They work with mutual funds and hedge funds.
  • Rating Analysts- Evaluate an organisation's ability to pay their debts.
  • Portfolio Managers- They are responsible for how a company's portfolio performs.
  • Risk Analysts- Device ways to manage unpredictability, limit potential losses and evaluate the risks in investment-related decisions.

• financial planners are also categorised based on how they charge their fees.

  • Fee-Only Financial Planner- An advisor who earns directly from the client's fees rather than commissions or other sources.
  • Fee-Based Financial Planner- Someone whose earnings come from fees from clients and commissions from selling financial products.

Apart from formal education in economics, business, finance, etc., the Certified Financial Planner (CFP) is the most reputed and desirable credential for a financial planner. These professionals go through a competitive process to pass a rigorous test that assesses their competency for the planner role.

Another such credential that is highly reputable is a Chartered Financial Analyst (CFA) certification. People pursuing the role of a CFA need to pass challenging exams and have 4 years of professional experience in the field of finance.

To ensure that you find the right financial planner who meets your expectations, you must ask them the right questions. So, when selecting a planner for yourself, be prepared with a list of meaningful queries.

Here is a list of 10 questions that you can ask:

• What is the kind of services that you provide?
• Are you a fiduciary or a non-fiduciary?
• Who are your most prominent and regular clients?
• How often do you communicate with your clients, and what is your mode of communication?
• How much time do you usually spend with your clients in person or online?
• How will you receive your payment, and how will you charge me?
• Which services will you cover in my bill?
• What are your credentials and certifications?
• What is the average cost of the services you provide?
• To which group of professionals do you belong?

The demand for certified financial planners in India is high in the private and government sectors. The average salary of a financial analyst in India can be around ₹4,50,000 per annum when organisations employ them.

Apart from that, the fee structure of a financial planner is divided into 2 parts.

• 1st Year Fee- A financial planner charges this fee when you approach them for the first time. The first-year cost is generally higher since your advisor needs a lot of time to devise a plan for you. The first-year charges usually vary between ₹15,000 - ₹25,000.
• Renewal Fee (2nd Year and Onwards)- At this stage, your planner already knows about your financial situation; hence it is easier for them to review your plan. The fee is usually less than this year since it takes less time to chalk out a goal than the first time. From the 2nd year onwards, the fee falls between ₹ 5000 - ₹ 15,000. Furthermore, the cost of a financial planner depends on various other factors, such as location, credentials, experience, etc.

When you find a suitable financial planner, you can reach your financial goals easily. However, since there is a lot of ambiguity related to this area, you must exercise caution when thinking about choosing a financial planner.