In India people expect advice for free. However, Ranjeet S. Mudholkar, Vice-Chairman and Chief Executive Officer, Financial Planning Standards Board India, (the body which grants the Certified Financial Planner or CFP certification), differs. According to him, this is a profession for those willing to walk the extra mile and ensure that their clients benefit and they, in turn, make a living.

In a chat with Business Line , Mudholkar speaks on the various aspects of financial planning, such as charges, conflict of interest and value addition to clients. Excerpts:

How can a financial planner make a living here when people do not pay for advice?

Nothing happens overnight. More than 20 years ago, our houses were designed by our mothers. Today, we have interior designers. It is up to the financial planner on how he communicates the benefits of hiring him and the value that he can bring to the table. People are intelligent enough to understand value addition. We have a smart generation.

How much should a financial planner charge?

People do not mind paying if there is value and service delivery.

It is not just about enhancing the income of a client or saving his tax outgo. I know of cases where a planner brought the client’s debt levels to zero.

Once the corpus to be managed is given, a planner should negotiate a pre-decided fixed charge which is a minimum and a variable charge that would be based on his performance.

This could either be in the form of an annuity or trail commission.

A financial planner should understand that he is a professional and only then will he be treated as one. Generally, no professional works on incentives.

The variable portion should be clearly explained to the client and he should be acceptable to it. While one should not be usurious in charging a fee, one should also not compromise in charging where there is value addition.

Finally, the fee to be charged should be unique to every client.

What about the conflict of interest when someone working for a financial services firm, which has its own products, starts advising clients?

A planner’s fiduciary responsibility is to inform the client that he works for a particular company while making a financial plan for him. The problem starts here. Can planners stand up to that trust which is expected of them?

At another level there is a principal-agent relationship between a financial planner and his client and he needs to honour the contract.

SEBI’s recent regulation on investment advisers has changed the contours.

What should a financial planner do?

He has to communicate a brand or a service quality which has value both in real terms and in terms of perception. There are professionals who become a brand by themselves. It takes the skills of a good entrepreneur to build a brand. You need to be an ambassador of your profession and people should aspire to emulate you.

How many of the 4,000-odd planners are actually practicing?

It is difficult to put a number because there are many working for financial services firms, such as banks, brokers, mutual funds and insurance companies.

Of the 4,000-odd only about 2,000 would fulfil the experience criteria of at least three years in financial services/personal finance. One has to pass modules on insurance and risk, retirement planning, investments, tax and estate besides two modules on financial planning to become a CFP.