The money we earn is partly spent and the rest saved for meeting future expenses. Instead of keeping the savings idle we may like to use savings in order to get return on it in the future. This is called Investment. Investment means putting our money to work to earn more money. We needs to invest to earn return on our idle resources, to generate a specified sum of money for a specific goal in life and to make a provision for an uncertain future. One of the important reasons why one needs to invest wisely is to meet the cost of Inflation. Inflation is the rate at which the cost of living increases. The cost of living is simply what it costs to buy the goods and services you need to live. Inflation causes money to lose value because it will not buy the same amount of a good or a service in the future as it does now or did in the past. For example, if there was a 6% inflation rate for the next 20 years, a Rs. 100 purchase today would cost Rs. 321 in 20 years. This is why it is important to consider inflation as a factor in any long-term investment strategy. Remember to look at an investment’s ‘real’ rate of return, which is the return after inflation. The aim of investments should be to provide a return above the inflation rate to ensure that the investment does not decrease in value. For example, if the annual inflation rate is 6%, then the investment will need to earn more than 6% to ensure it increases in value. If the after-tax return on your investment is less than the inflation rate, then your assets have actually decreased in value; that is, they won’t buy as much today as they did last year.

Mutual Fund

Mutual funds also offer good investment opportunities to the investors. Like all investments, they also carry certain risks. The investors should compare the risks and expected yields after adjustment of tax on various instruments while taking investment decisions. The investors may seek advice from experts and consultants including agents and distributors of mutual funds schemes while making investment decisions.

LITERATURE REVIEW

Mutual fund is a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in offer document. Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. Mutual fund issues units to the investors in accordance with quantum of money invested by them. Investors of mutual funds are known as unit holders.The profits or losses are shared by the investors in proportion to their investments. The mutual funds normally come out with a number of schemes with different investment objectives which are launched from time to time. A mutual fund is required to be registered with Securities and Exchange Board of India (SEBI) which regulates securities markets before it can collect funds from the public.

Fig. referred to mutual fund.com(Mutual Fund Operation Flow Chart)

Unit Trust of India was the first mutual fund set up in India in the year 1963. In early 1990s, Government allowed public sector banks and institutions to set up mutual funds. In the year 1992, Securities and exchange Board of India (SEBI) Act was passed. The objectives of SEBI are – to protect the interest of investors in securities and to promote the development of and to regulate the securities market. As far as mutual funds are concerned, SEBI formulates policies and regulates the mutual funds to protect the interest of the investors. SEBI notified regulations for the mutual funds in 1993. Thereafter, mutual funds sponsored by private sector entities were allowed to enter the capital market. The regulations were fully revised in 1996 and have been amended thereafter from time to time. SEBI has also issued guidelines to the mutual funds from time to time to protect the interests of investors. All mutual funds whether promoted by public sector or private sector entities including those promoted by foreign entities are governed by the same set of Regulations.

A mutual fund is set up in the form of a trust, which has sponsor, trustees, asset Management Company (AMC) and custodian. The trust is established by a sponsor or more than one sponsor who is like promoter of a company. The trustees of the mutual fund hold its property for the benefit of the unit holders. Asset Management Company (AMC) approved by SEBI manages the funds by making investments in various types of securities. Custodian, who is registered with SEBI, holds the securities of various schemes of the fund in its custody. The trustees are vested with the general power of superintendence and direction over AMC. They monitor the performance and compliance of SEBI Regulations by the mutual fund. SEBI Regulations require that at least two thirds of the directors of trustee company or board of trustees must be independent i.e. they should not be associated with the sponsors. Also, 50% of the directors of AMC must be independent. All mutual funds are required to be registered with SEBI before they launch any scheme. However, Unit Trust of India (UTI) is not registered with SEBI (as on January 15, 2002).

1. Schemes according to Maturity Period:

A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturity period.

Open-ended Fund/ Scheme
An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis. These schemes do not have a fixed maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis. The key feature of open-end schemes is liquidity.

Close-ended Fund/ Scheme
A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor i.e. either repurchase facility or through listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis.

2.Schemes according to Investment Objective:

A scheme can also be classified as growth scheme, income scheme, or balanced scheme considering its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows:

Growth / Equity Oriented Scheme
The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time.

Income / Debt Oriented Scheme
The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations.

Balanced Fund
The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds.

Money Market or Liquid Fund
These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods.

Gilt Fund
These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes.

Index Funds
Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc These schemes invest in the securities in the same weight age comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as “tracking error” in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme. There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges.

3. Sector specific schemes

These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. E.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time. They may also seek advice of an expert.

4. Tax Saving Schemes

These schemes offer tax rebates to the investors under specific provisions of the Income Tax Act, 1961 as the Government offers tax incentives for investment in specified avenues. e.g. Equity Linked Savings Schemes (ELSS). Pension schemes launched by the mutual funds also offer tax benefits. These schemes are growth oriented and invest pre-dominantly in equities. Their growth opportunities and risks associated are like any equity-oriented scheme.

Load or no-load Fund
A Load Fund is one that charges a percentage of NAV for entry or exit. That is, each time one buys or sells units in the fund, a charge will be payable. This charge is used by the mutual fund for marketing and distribution expenses. Suppose the NAV per unit is Rs.10. If the entry as well as exit load charged is 1%, then the investors who buy would be required to pay Rs.10.10 and those who offer their units for repurchase to the mutual fund will get only Rs.9.90 per unit. The investors should take the loads into consideration while making investment as these affect their yields/returns. However, the investors should also consider the performance track record and service standards of the mutual fund which are more important. Efficient funds may give higher returns in spite of loads. A no-load fund is one that does not charge for entry or exit. It means the investors can enter the fund/scheme at NAV and no additional charges are payable on purchase or sale of units.

Assured return scheme
Assured return schemes are those schemes that assure a specific return to the unit holders irrespective of performance of the scheme. A scheme cannot promise returns unless such returns are fully guaranteed by the sponsor or AMC and this is required to be disclosed in the offer document. Investors should carefully read the offer document whether return is assured for the entire period of the scheme or only for a certain period. Some schemes assure returns one year at a time and they review and change it at the beginning of the next year.

Considering the market trends, any prudent fund managers can change the asset allocation i.e. he can invest higher or lower percentage of the fund in equity or debt instruments compared to what is disclosed in the offer document. It can be done on a short term basis on defensive considerations i.e. to protect the NAV. Hence the fund managers are allowed certain flexibility in altering the asset allocation considering the interest of the investors. In case the mutual fund wants to change the asset allocation on a permanent basis, they are required to inform the unit holders and giving them option to exit the scheme at prevailing NAV without any load. Mutual funds normally come out with an advertisement in newspapers publishing the date of launch of the new schemes. Investors can also contact the agents and distributors of mutual funds who are spread all over the country for necessary information and application forms. Forms can be deposited with mutual funds through the agents and distributors who provide such services. Now a days, the post offices and banks also distribute the units of mutual funds. However, the investors may please note that the mutual funds schemes being marketed by banks and post offices should not be taken as their own schemes and no assurance of returns is given by them. The only role of banks and post offices is to help in distribution of mutual funds schemes to the investors. Investors should not be carried away by commission/gifts given by agents/distributors for investing in a particular scheme. On the other hand they must consider the track record of the mutual fund and should take objective decisions.

The performance of a scheme is reflected in its net asset value (NAV) which is disclosed on daily basis in case of open-ended schemes and on weekly basis in case of close-ended schemes. The NAVs of mutual funds are required to be published in newspapers. The NAVs are also available on the web sites of mutual funds. All mutual funds are also required to put their NAVs on the web site of Association of Mutual Funds in India (AMFI) http://www.amfiindia.com and thus the investors can access NAVs of all mutual funds at one place. The mutual funds are also required to publish their performance in the form of half-yearly results which also include their returns/yields over a period of time i.e. last six months, 1 year, 3 years, 5 years and since inception of schemes. Investors can also look into other details like percentage of expenses of total assets as these have an affect on the yield and other useful information in the same half-yearly format. The mutual funds are also required to send annual report or abridged annual report to the unit holders at the end of the year. Various studies on mutual fund schemes including yields of different schemes are being published by the financial newspapers on a weekly basis. Apart from these, many research agencies also publish research reports on performance of mutual funds including the ranking of various schemes in terms of their performance. Investors should study these reports and keep themselves informed about the performance of various schemes of different mutual funds. Investors can compare the performance of their schemes with those of other mutual funds under the same category. They can also compare the performance of equity oriented schemes with the benchmarks like BSE Sensitive Index, S&P CNX Nifty, etc. On the basis of performance of the mutual funds, the investors should decide when to enter or exit from a mutual fund scheme

As already mentioned, the investors must read the offer document of the mutual fund scheme very carefully. They may also look into the past track record of performance of the scheme or other schemes of the same mutual fund. They may also compare the performance with other schemes having similar investment objectives. Though past performance of a scheme is not an indicator of its future performance and good performance in the past may or may not be sustained in the future, this is one of the important factors for making investment decision. In case of debt oriented schemes, apart from looking into past returns, the investors should also see the quality of debt instruments which is reflected in their rating. A scheme with lower rate of return but having investments in better rated instruments may be safer. Similarly, in equities schemes also, investors may look for quality of portfolio. They may also seek advice of experts.

Almost all the mutual funds have their own web sites. Investors can also access the NAVs, half-yearly results and portfolios of all mutual funds at the web site of Association of mutual funds in India (AMFI) http://www.amfiindia.com. AMFI has also published useful literature for the investors. Investors can log on to the web site of SEBI http://www.sebi.gov.in and go to “Mutual Funds” section for information on SEBI regulations and guidelines, data on mutual funds, draft offer documents filed by mutual funds, addresses of mutual funds, etc. Also, in the annual reports of SEBI available on the web site, a lot of information on mutual funds is given. There are a number of other web sites which give a lot of information of various schemes of mutual funds including yields over a period of time. Many newspapers also publish useful information on mutual funds on daily and weekly basis. Investors may approach their agents and distributors to guide them in this regard.

Books:

Beri, GC (1996), “Marketing Research”, Tata Mcgraw- Hill., New Delhi. Kothari,C R (2005),”Research Methodology: Methods & Techniques”, Vishwa publication., New Delhi. Kotler & Keller,(2006), “Marketing Management”, Printice Hall Of India Ltd., New Delhi. Saxena, Rajan. (2003), ” Marketing Management”, Tata Mcgraw- Hill Publishing Company Limited, New Delhi.

We couldn’t agree more with Warren Buffett about the wisdom of using index-based funds for most institutional and individual investors. For our investors we focus on strategic asset allocation and use index-based funds and exchange traded funds (ETF’s) to get exposure to each asset class. Most investors and advisors use “actively managed” funds where a portfolio manager attempts to beat the index by picking stocks, industry sectors, and timing the market. Unfortunately the vast majority of these actively managed funds over time lag the index they are trying to beat, sometimes badly. Why do most investors continue to bet on them? It is the triumph of hope, greed, and massive mutual fund industry advertising over reason. It is also because they are not aware of the poor track record of active funds relative to the indices they are trying to beat. Standard and Poors updates its study comparing the performance of active mutual funds relative to the index funds they are trying to beat over rolling 5-year periods. It is available on their website. The financial services industry does not want you to see this data. The industry makes much more money on expensive actively managed funds than on low-cost index funds.

This Standard and Poors study is a very powerful set of data in favor of index-based investing, and against active funds. For domestic stocks funds about one-third of active funds beat the index, among international funds less than 15% of the active funds beat the index, and among several classes of bond funds less than 20% of the active funds beat the index. This data is generous to the active funds because it only shows the 5-year record. Over longer periods of time even fewer active funds are able to keep up with the index. It is also being generous because this data is tracking pre-tax returns. Due to their higher turnover active funds are much less tax efficient than index funds. The percentage of active funds that are able to beat the index on an after-tax basis is considerably lower than shown here. Some people say that the large-cap U.S. markets are very efficient and so this data is not surprising, but that small-caps and international/emerging markets are less efficient and therefore there is more opportunity for good active managers. This data refutes that as well.

Tricks of the Trade at the Mutual Fund Companies

The industry has several tricks to make it seem like their active fund performance seem better.
1. Merge or close funds with poor performance. They regularly take funds with lousy records and close them down or merge them into a fund with a good track record. This wipes out the bad fund’s track record or magically transforms it into a good record by merging it. This creates what is called “survivorship bias” in the numbers. The Standard and Poors data above corrects for this bias.
2. Advertise only the funds with good recent performance. It seems like all you ever hear about is the great funds all these companies have, since those are the only ones they talk about.
3. Only talk in terms of pretax returns. With high turnover the after-tax returns of their active funds are typically much worse.

Advantages of index-based funds (relative to active funds)

1. Much lower costs. We build diversified portfolios for our clients across multiple asset classes where the funds we use have an average expense ratio of only.2%-.3%. The typical active equity mutual fund has an expense ratio of around 1.2%. Many active funds also have up-front sales loads of as high as 5.75% (ouch!).
2. Lower turnover. Many active funds have high turnover ratios as the portfolio manager makes numerous trades trying to beat the market. This results in higher transaction costs.
3. More tax efficient. Index-based funds and ETF’s are significantly more tax efficient that active funds due to their lower turnover ratios.
4. More transparent. You always know what you own in an index fund. With active funds you aren’t sure what kinds of individual stock bets, industry bets, or other bets they are making.
5. More diversified. Index-based funds tend to have many more individual securities in the fund.
6. No style drift. Active funds often drift away from the size/style they are supposed to use in an attempt to chase better performance in other areas. When you are building a portfolio based on asset allocation (like we do) you want each asset class to actually represent that asset class, and not to try to sneak into other areas in an attempt to chase short-term performance.
7. More consistent performance. With active funds you have “relative performance risk” that you don’t have to worry about with an index-based fund. Active funds often lag several percentage points (or worse) behind the index when their active bets go bad.
8. Better performance. See the data on the Standard and Poors study.

What if I only invest in the good 5-star active funds with great performance?

Unfortunately past fund performance in funds is not predictive of future performance. Numerous studies have shown this to be true. Others point out that it would take decades to statistically prove that a manager’s good track record was due to skill and not luck. Many studies have shown that even the Morningstar famous star rating system fails to provide any significant predictive value for future performance. In fact a strategy of always buying the funds with the best recent 3-5 year performance is often a horrible strategy because it ends up causing you to chase good recent (past) returns, which can quickly turn in to bad performance as most strategies and styles “revert to the mean” over time. Are the portfolio manager(s) on the fund still the exact same now as when the past track record was created? Is the fund still the same size as it was when the track record was created (it’s much more difficult with a larger fund)? The single best predictor of future performance is the fund’s expense ratio (lower is better).

A 457 retirement plan offers employees of state governments, subdivisions of state governments or certain eligible key employees of non-profit organizations to save for their retirement now and pay taxes later by contributing a portion of their salaries to the plan.

I’m gonna touch on 6 things about the plan which I think is pertinent for you to know if you’re participating in this plan.

1. How Much You Can contribute on a Tax-Deferred Basis

You may contribute the lesser of $15,500 or 100% of compensation.

If you’re eligible for catch-up contribution, then you can contribute an additional $5,000 to make a total of $20,500.

2. How Are The Contributions Invested

The money you contribute is invested at your direction in one or more of a variety of investment options offered by the plan.

Many 457 plans offer both fixed and variable investment options.

The fixed options which are through bank and insurance company products guarantee principal and interest.

The variable options which are through insurance company products, bank products or mutual funds provide “variable” returns, which are not guaranteed.

Your employer determines the investment options available to you and the options may change from time to time.

3. When You Can Withdraw The Money You Have In Your 457 Retirement Plan

You can withdraw the money upon:

Your retirement Your encountering of emergency Reaching the age of 70

The best investment portfolio for 2010 and beyond will hold stocks, bonds, and money market securities. Finding the best investment in each area is not possible or necessary. Coming up with YOUR best investment mix is. Let’s review your investment options.

I’ll keep it simple. If you invest at all you have an investment portfolio, which is simply a list of the investments you own. For example, if you have a 401k plan you probably picked a few different investment options from a list. Most of your choices were likely mutual funds. Even if you knew not what you were doing, you put together your own investment mix, your own portfolio. The question is whether or not this is the best investment mix for you.

If you are like 90% of the investors I’ve known and worked with as a financial planner, you don’t really understand this stuff. That’s why you should be invested in stock funds, bond funds and money market funds vs. individual securities like stocks and bonds. When you own funds professional money managers pick the stocks and bonds etc. for you and a pool of other investors. But you need to pick the appropriate mix of funds.

So, let’s take a look at the securities or funds you might own or be considering, and see if changes might be in order. I say “might own” because most people are not sure what they really hold in their investment portfolio. Sound familiar? Let’s start with your safe investments like bank CDs and money market securities. If you have cash invested in a money market fund, you have money market securities in your portfolio. The bad news is that you are earning very little in your safe investments. The good news is that you have a high degree of safety. Don’t keep all of your money here, but don’t bail out just because interest rates are low, either.

If you are risk adverse don’t be afraid to have 50% (or more if you are retired and older) of your investment mix safely invested. Sooner or later interest rates will go up… which brings us to the next area of investment options you might own. Bonds and bond funds (also called income funds) pay more interest, and billions of dollars flowed into bond funds in 2009 from every-day investors chasing higher interest rates. Check and see if any of your mutual funds fall into this category.

Income funds or bond funds probably treated you OK over the years, but this will change in a hurry when interest rates go up. Interest rates were at highs in the early 1980′s. They were at historical lows in 2009. When rates go up money market funds should be good investments and pay more interest in the form of dividends. Bond funds or income funds will lose money. That’s not a theory. That’s the way bonds work. If bonds or bond funds are a large part of your investment mix, or you are considering long-term bond funds, think twice. The risk is significant. Your best investment here is short-term and intermediate-term quality bond funds.

Now let’s look at the third category of investments you probably own or should own… stocks, commonly in the form of equity funds. These are the investment options that have likely caused you heartburn and acid indigestion over the past several years. There’s more risk here, but greater profit potential as well. The best investment mix for most investors: about 50% in stocks, preferably spread across a VARIETY of equity funds. Conservative folks might want to cut this to 25% or even less, but all investors should be familiar with the variety of equity funds that are available to them.

First, you need a GENERAL DIVERSIFIED domestic (U.S.) equity fund that basically tracks the U.S. stock market’s performance. Then, add a diversified international fund that invests in a broad range of foreign equities. You now have a leg up on most investors who miss opportunity by not investing abroad. You may want to add a small-cap or mid-cap fund that invests in smaller companies, because these funds can outperform in some market environments. Finally, consider non-diversified equity funds that specialize in stock sectors like real estate, natural resources, basic materials and precious metals for a smaller portion of your allocation to stocks.

The best investment portfolio going forward will contain stocks, bonds, and money market securities; but you will need to give your investment mix the attention it deserves. Hold some safe investments, avoid long-term bonds, and diversify your stock holdings. Uncertainty and risk in the investment markets is likely to remain high. When in doubt diversify across the three investment areas and within each of them.

There are a lot of reasons you might be considering getting help from a financial planner. Planning for retirement is usually a primary reason. Along with others like the education of your children, or buying a home or not having the know how to get your finances in order. Whatever the needs may be the right financial planner will be instrumental in securing the future.

This article is intended to help you assess any number of financial planners until find the one that is right for you. You will be looking for a qualified individual who is both professional and with whom you can feel comfortable with. You can use this article to create a checklist if you would like.

1. How Experienced Are You?

Ask about how long they have been a financial planner. Ask about the types of companies they are associated with and how many there are. Ask for a brief description of heir experience in relation to their current practice.

2. What Qualifications Do You Have?

Ask the kind of qualifications they have. Are they a ChFC (Chartered Financial Consultant), CFP (Certified Financial Planner), PFS (Personal Financial Specialist) or a CPA (Certified Public Accountant). A lot of financial professionals can use the term “Financial Planner” so make sure to find about which designations are carried. Ask how the planner stays current with changing trends, product developments and new product releases.

3. What Kinds Of Services Are Offered?

The services offered are dependent on issues like licensing, areas of expertise and credentials. Giving investment advice requires you to be registered with state or federal authorities generally speaking. Also, in order to sell mutual funds, stocks, securities, or insurance products a planner must be properly licensed. Like me, I carry all the appropriate licenses for the insurance products I sell.

4. What Kind Of Technique Do You Use?

Some financial planners want you to have acquired a designated worth before moving ahead. Some planners like to provide advice only in the areas desired. Some financial planners will develop one scenario by bundling all facets of your financial objectives. Make sure you familiarize yourself with the financial situations the planner is most comfortable with.

5. Are You The Only Person I Will Be Working With?

Make sure to find out if the planner will pursue the plan designed for you, will the planner have assistants or will the planner refer you to other professionals.

6. How Do You Require Payment?

Payment will be included in the agreement you design. The planner will lay it out in writing how payment will be scheduled. There are usually a few different methods a planner will use.
a. Salary. The employer of the planner will receive payments from you either in fees or commissions
and pay the planner a salary.
b. Flat Rate. There will be a percentage, flat rate or even just an hourly rate.
c. Commissions. A commission paid on the products sold to you to carry out the plan designed for you.
d. Combination. Payment may be a combination of certain fees and a commission on products sold. Some may offset certain fees for purchase of certain products.

7. What Are Your Normal Charges?

A planner should be able to provide an estimate, or a ballpark figure based on having rendered these services before. Usually the estimate will include the flat fee or hourly rate for the services. It will also include the commission paid on the products you may purchase based on their recommendations.

8. Will Other Parties Benefit From The Advice You Give Me?

Ask the planner to disclose, in writing, any conflicts of interest that might arise based on the business relationships they hold. Will the planner receive any business for referring you to another professional for advice or suggestions/products?

9. Have You Ever Had Action Brought Against You for Unethical Behavior?

There are several professional and governmental organizations such as the NASD(National Association Of Securities Dealers) state insurance dept. and CFP(Certified Financial Planner) Board who keep records of these actions. Ask what organizations this planner is specifically regulated by. Ask for the disclosure form known as the Form ADV 2. This is a form the planner should have available upon request. This is just a simple form that identifies all the organizations he/she is affiliated with.

10. Get It In writing.

I don’t care how you ask, get it in writing. Make sure all details of the agreement are spelled out and understood. Make sure to keep this document in a safe reliable place.