“Where do you think the market is heading?”, queried a suited gent, when I was attending a friend’s marriage. He said he heard that I’m a Financial Planner and wanted to pick my brains. “Difficult to say”, I hedged. “ It all depends on so many factors like monetary liquidity across the Globe & India, state of economy, inflation, world events, demand factors etc.. Since many of these seem to be improving, we could surmise that the stock market will do well in the medium term, though short term whipsaw movements cannot be ruled out”, I concluded. This did not please the suited worthy and he went on to specific stocks.
“What do you think of Reliance, ICICI Bank & Cairn India?”, he demanded to know. I said, these are good companies but investment in them should be done, considering one’s overall situation. This confused him a bit.
“Investments are Investments , right? What situation are you talking about? My Financial advisor keeps telling me what to buy & sell, on a weekly basis. If you don’t do this, what is that you do?”, he wanted to know. I figured many others would too. I started explaining.
“Financial Planning is about laying out a road map which will help in achieving goals, through proper financial management. Here, every aspect of the person’s finances – Income, Expenses, Assets, Liabilities, Investments, Insurance & ofcourse… goals are taken into account and then a plan is drawn up that will be relevant to the person and the family, in their unique situation. While creating the plan, the planner looks into the person’s/ family’s goals, current situation, committed expenses, Income / expense pattern, risk exposure, cash flows, future commitments etc. and suggests a plan of action with which they could comfortably sail through life, meeting all the goals set within the timeframe. Hence, the plan is specially tailor-made for every family and will be most relevant to them”, I paused.
“So, you have to create a plan from ground up”, queried a cherubic gent who had now joined our table. “Yes, it has to be”, said I forking in some salads.
“Looks like, you’ll require a lot of information”, observed a gent in a pin-striped shirt. “We will require complete information on all aspects of investments/ Insurance, Assets/ liabilities, Income / expenses, down to the last detail. Without that, it is not possible to create a comprehensive plan that addresses their specific situation. It is like giving complete medical history to a doctor”, I ventured.
“That’s going to be pretty difficult for me. My information is all scattered”, said the cherubic gent. “You’ll then need me even more… for, once you take the trouble of giving me the information and I further scrutinise and organize it for you, you will know, probably for the first time, where you stand”, was my repartee. He agreed.
I continued. “Our work goes just beyond organizing. The planner would suggest corrective steps in existing investments and loans, as required & unlock money locked-up in unproductive assets. Beyond that when we create the plan, we spend time trying to understand the goals, discuss your goals, funding of assets, expense rationalization, provide clarity about future requirements for children, retirement funding, provisioning for medical exigencies, providing a security blanket for the family, correct asset/ savings mix, tax planning … in short, everything that concerns you. The plan looks at cash adequacy, after meeting all goals, and works out cash sufficiency, till retirement and beyond. “
“That sounds pretty good to me. But, is proper projection for such a long period really possible?”, queried an earnest looking woman in a smart cotton saree. “We do make assumptions regarding investment returns, inflation, salary increases, expenses etc. These are based on the actual ground realities, the historic patterns & our experience. However, the projections can go wrong. That is precisely why, a financial plan needs to be reviewed and recast every year, to take into account the changing situations as also incorporate any changes in the parameters assumed”, answered I.
“Ok… but is Financial Planning only for the rich? Many of us may not be able to afford the fees”, came in the same lady in cool cottons. Wanted to give her a gift for being the millionth person to ask this question! “Financial Planning is for all those who want to sort out their finances, have a overall view of their situation, ensure that they are in the right direction and have a clear roadmap to reach their goals. There is no particular class of clients who may require financial planning. Our clients are from all age groups ( 25-75 ), socio-economic strata, single/ married, salaried to business owners… People come with nil investments to very huge investments/insurance. So, the profile of people who opt for Financial Planning is truly diversified. “
“To answer your implied question – Can I afford you? Or, If I have to pay a good fee, is my wealth not actually eroding? The answer to these questions, ask these questions yourself.
Can you afford to be in the dark about your finances? Will it all work out, if you keep investing here and there, based on what you hear & read? Can you move ahead in life without knowing where you are heading? Don’t you want to know if your goals are achievable or not and how to achieve them? Do you have the time to do it all?
Now the answers… Most will answer the above questions with a No. If so, you need a professional to do these for you. Apart from these, a Financial Planner will also, sort out your finances, help you take critical decisions in life ( do I buy a home now? Or can I afford a new car? ) be your advisor on all matters financial & guide you over time. You will need to pay the fees for these services. You can judge for yourself if the fees are reasonable in comparison with the services offered and only then engage a planner “, concluded I.
The entire group had fallen silent. I thought they were mulling this information in their minds. I moved away for some desserts.
published in DNA in Nov 09
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