Recently, a private life insurance company launched a media
campaign offering to financial planning services for free for everybody. Out of
curiosity, I enrolled for the service. To my utter astonishment, I was briefed
about a product over telephone call that I had got to fix up an appointment
with a company representative. I went ahead with the appointment anyway. The
company representative that called on me, asked for my date of birth, my
monthly income, and my preferred choice for life insurance. AND BEHOLD, the financial plan was
ready! Based on my income, I was suggested to subscribe to the child plan of
the company (although my preferred choice for life insurance was term
assurance). It took no more than 10 minutes for the advisor to make the so
called financial plan---consisting of an insurance plan ONLY.
Gone are the days, when people were mis-sold a particular
investment/insurance product. With Regulators getting strict on the financial
advisory front with focus on financial literacy of consumers, product sellers
are increasingly adopting Financial Planning concept to push products. Mutual
fund companies, banks, insurance companies are coming up with new software,
forms etc. which capture specific financial data of the consumer and present a
target amount for the consumer’s goal and the investment that the consumer has
to make to meet the said goal. This is the financial plan for the consumer.
Spreading financial literacy can and will prove costly for such
insurance, mutual fund companies and they are aware of this hard fact. Hence,
they have started to adopt increasingly popular concept of financial planning
to meet their sales targets by pushing products. Since there is no bar on using
the words Financial Planner besides your name, even insurance or mutual fund
agents can call themselves financial planners.
So if financial planning is not buying only either an insurance
policy or a mutual fund schemes, then what is financial planning all about?
--Financial Planning is about managing your finances in such a
way, that you can achieve your life’s goals comfortably. Income
and Investments are just one aspect of a financial plan. It also factors in
your liabilities and expenses. Financial planning is a road to financial
nirvanaa, a process and not an end in itself.
--Check whether the financial advisor
follows the steps laid down by Financial Planning Standards Board, India (FPSB)
viz; gathering data, setting life’s goals, examining your current financial
status and suggesting a strategy to meet them.
--There should be a formal client engagement letter at the
beginning of the relationship which sets out terms and conditions for both the
planner as well as the consumer.
--A financial planner should look at your cash flow in detail. He
should be able to portray the correct financial position and recommend
solutions that are in your interest. Recommendations should not cover only
insurance or investment products but encompass other aspect of your financial
position like debt management, tax, and retirement planning etc. also.
--Financial planning is not a one-time activity. Financial
position, requirements, family position keep on changing and your financial
plan should be regularly re-visited to keep it in sync with your current
financial position and future goals.
Financial planning is not one-size fits all plan/process. It is a
customized to every person’s needs and financial position. However, more often than not, in order to get
quick solutions at lowest or better still no cost at all, people fall for the
trap laid out by product pushers in guise of financial planners and end up
buying product rather than getting a solution to their requirements. After all it’s your hard earned money that is
involved here and so do your children’s education and your retirement. BEWARE
of the so called financial planners!
