I’M A FINANCIAL PLANNER, TOO!

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!