Should you hire a financial planner or do it yourself ?
Be it gymming, dieting, curing simple health problems, building a house, tax filing or money management – there are two ways of getting them done, either hire a professional for guidance or do it yourself. In each case, the decision to hire a professional is based on many factors which vary for every individual. Like for example if you are building a house on a plot, you may decide to hire an architect based on the size of the project, what kind of interiors you want, your budget, etc. Else you may simply give briefing to a local contractor and supervise the construction yourself.
Financial Planning is no rocket science; it is combination of simple financial strategies, few calculations and most importantly discipline. You may not have a written plan and a second opinion given by a professional financial planner, but can still do fine doing it yourself if the following five factors are in your favour and you are disciplined & self-motivated to take charge of your money.
You have to commit ‘time’ if you want to manage money successfully. You will first need to start by educating yourself with personal finance matters and products. The best way to do this is by reading money magazines or money sections of your daily newspaper. You may also spend time watching TV shows or surf the internet. There is too much of information floating around, you need to get used to terminologies and products on insurance, investments, banking, taxation etc.
You will also need ‘time’ to understand your needs, set financial goals, learn to use financial calculators (most of them are available on internet), compare products, take a decision and execute it. Getting a grip over your money is a continuous affair and doesn’t happen overnight; it will take at least 2-3 years. Spending 6-9 hours a month over weekends should serve this purpose.
If you are not able to make this commitment, it’s a good idea to hire financial planner who will do the handholding, advice and maybe even execute the plan. Even in this case you will have to spend 2-3 hours month in meeting the planner, understanding the plan, executing and reviewing the plan.
Do it Yourself vs. Hire a Financial Planner
Do it yourself
Hire a financial planner
|Time||If you can give 6-8 hours a month to read, understand, research and act||If you can give 2 hours a month to understand & act on the plan|
|Affordability||If you can’t afford a fee of Rs. 10-30 K to a financial planner p.a.||If you can afford a fee of Rs. 10-30 K to a financial planner p.a.|
|Availability||If you are not able to find the right financial planner in your city.||If you are able to find a qualified financial planner within your budget|
|Knowledge||If you know time value of money and keep track of personal finance space||If you hate doing calculations and are not inclined to read financial stuffs|
|Complications||If you have a clean portfolio of pure insurance policies, few mutual funds fixed deposits and Bluechip stocks||If you have built a large and scattered insurance policies & investments bought on ad-hoc basis|
Hiring experienced & professional financial planner costs money. In India currently, CFP practitioners charge anywhere between Rs. 10,000 to 30,000 to make plan, execute & monitor it. It’s no point having a plan done from self-proclaimed planners who are actually insurance agents or mutual fund distributors doing it for free and in the end recommending the products they want to sell.
‘Willingness to pay’ is best left to you. But ‘ability to pay’ can be quantified to some extent. In general if you are earning more than Rs. 6 lakhs a year or have an investment portfolio of Rs. 5 lakhs and above, you should be in a comfortable position to pay up the fees. You can use this as a benchmark for deciding whether to hire a FP or DIY. It’s a simple tradeoff – you pay fee to save your time, efforts and get professional advice, but let this not be the only deciding factor.
This may be a non-factor after some years, but as of now it is huge factor. Currently more than 1,500 are qualified as Certified Financial Planners in India out which not more than 200 are practicing. And even these handfuls are seen in bigger metros. With growth in demand from consumers, this situation is changing fast. So if a qualified and practicing FP is available in your city and is offering the services which you require, you may think of hiring one. Also check on the background, fee structure, references etc. It’s better to DIY if planner’s offering doesn’t suit your requirement.
There are a number of questions which you should be able to answer by yourself. How much corpus do I need for a comfortable retirement? What are various tax benefits available? Am I saving enough or spending too much? Should I be taking home on loan or is it better to rent for some more time? How to invest in equity markets? How will be impact of inflation on my finances? You should also be able understand present value and future value of money.
This knowledge is currently made available by print, TV and web media in abundance. So it’s not difficult to find answers to these questions. You just need to take time out from your busy schedule and have an inclination to go through it.
And finally the decision can depend on the complications in your financial affairs. Is your income from single source or multiple sources like double salary, rent, investments etc? How is your current portfolio spread out – if you have been investing in mutual funds, stocks and insurance policies on an ad-hoc basis the chances are your portfolio is widely scattered and needs to be consolidated. If you are in such a situation a professional can give you a holistic view and help bring harmony in your investments and map them to future goals. If things are simple, take charge of it yourself.
After evaluating all the above factors, you may decide and try o do it yourself or seek a planners help. Alternatively you may try yourself for sometime before turning on for external help. But, start somewhere & take the first step towards having a plan in place!