With the rising investor needs and complex financial products, there is a strong requirement for need-based holistic advice by financial planners.
It is often said that Indians are good savers, but ‘poor’ investors. Indians usually lack the financial knowledge to plan for the long-term. They fail to save for their retirement but won’t think twice before breaking their savings to splurge on a foreign tour, weekend home, etc.
Most do not even maintain accounts of their monthly expenses and savings. They are unable to provide rough estimates of how much is spent on what purpose. It is essential for people to know their expenses to comprehend the amount of money to be saved/invested for meeting their future goals. Even if they keep track of their expenses, they feel lazy to prepare a budget and to stick to it. This phenomenon is not only confined to rich households but also prevalent among poor and middle class households.
With the economy doing well, people are earning astronomical salaries but are not ‘financially literate’ to take care of their funds. They can’t differentiate between financial products based on risk, tenure, tax and returns. With healthcare improving, the average life span of a person post retirement has increased by an average 15-20 for males and 25 years for females.
This necessitates the need for a financial planner who has accurate information about products and the client’s needs. For instance: if a person has a family that is financially dependent on him, he/she needs to buy adequate life insurance to secure the family’s financial future in the case of an untimely death of the primary earner. If one is already financially protected and the primary need is for capital appreciation, then available options under saving-oriented plans, equity-linked saving schemes may be considered. There are a number of players in each of these avenues with diverse offerings. It is difficult for a person to manually keep track of all financial avenues.
It has been observed that financial planners charge a fee for their services which is a big turn-off for Indians, who usually ‘trust’ their family members, neighbours, colleagues, sales persons for their financial planning. They fail to realise the difference between a ‘good’ and ‘bad’ expense. To many, financial planning means saving/investing more and stopping unnecessary expenses, thus failing to see the big picture.
The role of a financial planner is similar to that of a doctor. A financial planner is a professional advisor who helps clients deal with various personal finance issues through proper planning.
He/she helps you meet your financial goals in a systematic way by analysing your expenses and savings. Based on the latter, he/she draws up a plan for the future. The planner monitors changes in your portfolio and based on life events helps tweak it to achieve the desired objectives.
The need for financial planning
Financial planning is still at nascent stage in India. Financial planning is necessary to make sure that you are investing in a planned way to lead a comfortable retired life, to beat inflation and meet other medium term and long-term goals such as children’s education and their marriage.
With the rising investor needs and complex financial products, there is a strong requirement for a need-based holistic advice which can be provided by financial planners to the investors. The role of financial planners is to meet the financial goals of their clients. Financial professionals serve as a channel between saving and investment for consumers.
How financial planners work?
Financial planners are professionals who have passed the certification (certified financial planner) exam. They have learned strategies and have gone through in-depth knowledge to understand how to restructure a common man’s financial mess and come up with a sound long-term plan which will help a client achieve his/her financial goals in future. CFP is regarded as one of the top most certifications in financial planning and it is recognised in most countries.
Financial planners comprehend the income level and risk appetite of the investors before advising them for a particular product. The financial planner first understands the financial goals of the client, gathers relevant information from him/her, analysis this information, constructs a financial plan, implements the plan and finally monitors and reviews the plan regularly.
Financial planners use simplified representations that help people understand what is being advised and why. Most planners prepare a financial plan which normally includes nearly 20 pages, of which around five pages comprise introductory details about the clients, disclaimer, discovery notes such as clients stated goals and concerns.
Financial planners help consumers take informed decisions related to their investments and financial goals. Financial planners also ensure that the customers’ information remains confidential with them.
How to choose a financial planner?
Investors often lack “trust” in their financial planners. Hence, they need to have a certain level of trust while consulting a financial planner. They need to interact with the planner, check their credentials, ask for a sample plan and once when they are satisfied, they can hire the planner.
Investors also need to check that the planner is not selling them any product. His job is to provide financial advice and not sell products or refer investors to other agents—where he may be earning some commission.
Financial planners aim to give personalised service to their clients. They provide clients guidance over phone, by email, chat and face to face. At the end of the day, a financial planner is someone who is concerned with meeting your financial goals and educating you and not just making money from you. There is a certain moralistic tone in advice which tells customers that they should be saving rather than spending.
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