Source: The Economic times Wealth, 30/Jan/2012. (Typed down by VRIDHI for the benefit of all)

- You need financial advice if…

You don’t have the time to do your own financial planning.

You don’t have the financial expertise to chalk out a plan.

The plan made by you is not working out.

- Remember

Financial planning is not just tax planning.

Planning needs a goal-based and need-based approach.

Making a schedule is not enough; its correct implementation is equally important.

A periodic review and stock check is must.

Agent or Broker

Takes a narrow view, focusing on one or two products or goals.

Go to him if: Your investment is low (less than Rs.1lakh a year) or if you are confident of choosing the right product yourself.

What he does: He acts as interface between the investor and the financial services company. An agent will recommend a product, help you with the paperwork, submit documents and complete other modalities.

Cost of advice: some mutual fund agents can charge a small transaction fee of Rs.100-150 for investments of Rs.10000 and above. An insurance agent will not charge directly; his commission is built into the product.

Watch out for: Agents and brokers often mis-sell products, promoting those that suit their needs more than yours.

Wealth Manager

Has a broader view of overall finances, but focuses on investments.

Go to him if: you have a large investment portfolio (around Rs.5-6 lakh a year) and you don’t have enough time.

What he does: Chalks out an investment plan for you on the basis of the desired asset allocation and past investments. Also offers services, such as tax planning and filing tax returns, and takes care of the paper work.

Cost of advice: Charges are between 0.5% and 2% of the investment. It could be on a profit-sharing basis.

Watch out for: The wealth manager community has earned notoriety after high-profile cases of mis-selling and fraud.

Financial Planner

Takes a 360 degree view to give you comprehensive financial advice.

Go to him if: You are looking for a complete financial over-haul and or willing t pay for the advice.

What he does: Offers complete planning, which takes into account all aspects of the individual finances. Gives holistic advice that includes investment, insurance, tax planning, savings for goals and retirement planning. Reviews how the plan is progressing every quarter.

Cost of advice: Ranges from Rs.5000 – 30000 for the first year, and then a recurring charge of Rs.5000-10000 a year. The fee is lower if you invest through the planner, who earns a commission on the products.

Watch out for: Financial planning fails if it is not implemented in full and in the way suggested by the planner.

The Fee Models

Commission

*Agents and brokers usually earn only from commission. Suitable if your portfolio needs a slight tweaking.

*Commission varies across products, so beware of mis-selling. You may be sold a product with a high commission.

*Find out how much commission is earned by the broker on the products recommended by him.

*You may have to conduct your own research about the pros and cons of the product suggested by the agent.

Fixed Fee

*This model segregates the advice function from the sales. It is usually followed by financial planners.

*Charges differ across planners. A plan’s cost can range from Rs.5000-30000.

*Charges depend on the level of engagement, the quantum of work required and your financial health.

*Apart from the one-time fee, you also have to pay a yearly renewal fee.

*Suits someone who needs a comprehensive financial plan.

Percentage of Investment or Profit

*This model is generally followed by wealth management firms and portfolio management services.

*The fee is a small percentage of the amount invested through them of the profits earned on the investment.

*This method of profit sharing links the interest of the wealth manager and the investor.

*The percentage charged can vary from .5%-2% of the investment.

*Apart from this, the wealth manager also earns a commission on the products sold to the client.

*Watch out for this arrangement because it can lead to mis-selling.

*This model is suitable for high net worth investors.

A good Financial Plan will…

Help you realize you financial goals.

Make sure you have adequate cover incase of emergencies.

Help you build a contingency fund for eventualities.

Reverse your wrong financial decisions and take corrective actions.

Aim at Capital appreciation by channelizing your money into the right options.

What to look for in a Planner?

Qualification: Check if your planner has adequate qualification or degree, such as CFP (Certified Financial Planner). In India the CFP degree is awarded by the Financial planning Standards Board.

Experience: Choose a planner who has ample experience. Find out if any of your acquaintances has availed of his services.

References: Search and Check for their profile on the Internet, A Financial Planner should have a presence in the Industry. Ask for references and, if possible, speak to some of his clients about the module. Check if it has worked for them.

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Wealth Management: 6 things to remember for a smooth financial journey

Uma Shashikant, Economic Times 30/1/2012

source: http://articles.economictimes.indiatimes.com/2012-01-30/news/31005827_1_demat-accounts-wealth-management-kyc

Wealth management, as practised today, tends to focus a lot on investing in the right products, and in a limited manner, on asset allocation. While asset allocation should be the strategic core, we cannot neglect the importance of good housekeeping. The surge in financial products and advisory services has meant that investors hold a range of investment and insurance products. Documentation, preservation, operational issues and consolidation of holdings need suitable attention from wealth managers.

First, investing has moved from the scarcity-based rush of the earlier times. The number of good quality issuers of equity shares and bonds is high and investors need not panic about missing the boat. Several products like mutual funds are available on tap and can be bought when needed. Secondary markets are liquid and investors can buy after listing, when the noise has settled down and more information about the stock is available.

Bonds, hopefully, are also moving towards a better retail market. So, it no longer makes sense to have multiple demat accounts in multiple combinations, several mutual fund folios for the same set of investors, or multiple trading and investing accounts. The investors who are not hiding from the taxman should, instead, consolidate their investments so that these are easy to monitor and manage.

Second, several processes are automated and streamlined now. Financial service providers have agreed to accept PAN as the identifier and use common KYC norms. This means that banks, mutual funds, insurance companies, depositories and brokers can easily link up transactions based on common identifiers like PAN. Therefore, it is easier to standardise details, such as address, e-mail, phone numbers, bank account details and similar information, which help operate the accounts. Given the stringent requirement for PAN, multiple accounts may not help hide information, only make them cumbersome to manage.

Three, investments are held in multiple formats and need streamlining. The first holder, second holder and mode of operation may be different for different accounts, which can create problems. If the investor doesn’t choose the manner in which the account has to be operated, the default option-usually ‘operate jointly’ for a joint account-is chosen by the service provider. This can be operationally cumbersome and any subsequent change in the mode of operation may not be allowed.

Some accounts may have minors as first holders, wherein the accounts are frozen when the child is no longer a minor. The children could be unavailable to register their claim as the rightful owner of the investment. Worse, the money may be inaccessible when needed as operational procedures to convert a minor account to major have not been completed. Demat accounts require a fresh account to be opened if a minor turns major. It is important to standardise the holding patterns and ensure that they are updated.

Four, nominations are optional in several older investment formats. In the case of an investment held in a single name, without a nominee, it would be tough to access the money if the holder dies. It is now compulsory for such accounts to have a nominee. Nominations can be created or modified at any time. Older investments with parents as nominees may need a change after wedding.

Similarly, nominations in favour of children or siblings may need change over time. Those in the name of spouses may require an alteration if the marital status changes. Nominations are used by service providers to pay the proceeds after the death of the account holder and their liability ceases once they do this. If investors had identified a different nominee, but failed to make the modification, their heirs may face legal and procedural delays in accessing the accounts. Streamline the nominations to make it easier for loved ones to access the wealth of the deceased.

Fifth, it is important to carry out estate planning. Several investors have moved from frugality to prosperity, holding several assets, such as more than one house, a sizeable investment portfolio and other securities. The traditional approach of giving gold to the daughter and the house to the son has long gone. Estate planning may be a simple process of writing a will, and registering it if the assets include immovable property.

Today, professional services are available for creating trusts that serve specific purposes. These help provide for special needs, including beneficiaries who may not necessarily be heirs, or ensure that the assets are preserved while the income is made available to identified beneficiaries. If investors hold immovable assets, gold and securities, and have children in other countries, it is critical that a succession plan is drawn using good advice. Leaving assets without a documented bequest can lead to disputes and tedious legal procedures.

Sixth, several investment processes are driven by tax consideration. This is similar to the inefficient financial strategies that firms pursued in the pre-liberalisation era. Many profitable companies diversified just to reduce the tax burden. In a new, liberal world, several of these have shut down for lack of viability. We see a similar approach in personal finance, where tax planning drives investment decisions, holding patterns and paperwork.

These may lead to inefficient solutions that make consolidation, bequest and preservation of wealth, difficult. An unscrupulous person with an undisclosed income could hold benami property, but its inheritance and looting by unknown hangers-on can be the price he pays. To most others who earn from professional expertise and pay taxes, the effort should focus on protecting, consolidating, preserving and bequeathing assets.

B.Venkatesh, Business Line

source: http://www.thehindubusinessline.com/features/investment-world/money-wise/article2820472.ece

Last week, I had an interesting conversation with a friend who is in his fifties. He recently realised that he has not saved enough for his retirement.

He jokingly remarked that his son was his retirement investment! Fortunately, my friend is skilful and can work past 60 if he wants to. But the point is that many of us do not save enough for retirement. Why?

Consider this. You are invited to a party, which is loaded with junk food. You would love to indulge but your doctor has advised you to reduce weight.

What will you do? If you indulge, you are just one of the many who do not have self-control. Why do we find it difficult to resist temptation?

We are always at war inside our head, our present-self fights with our future-self. And our present-self often wins. The reason is not far to seek.

Suppose you are offered cola, chips and pizza. The fact is that your present-self enjoys such food. And your present-self cannot gauge the impact of such food on your health, because the after-effects are typically felt sometime in the future. So, you discount the future.

That is, today’s pleasure is more important to you than the pain in the distant future. Your future-self loses the war.

TODAY VS TOMORROW

The behaviour is the same when it comes to saving for retirement. The war in this case is between current consumption and savings.

You can either have a good lifestyle today. Or cut your current lifestyle to save for the future. We typically choose to have a good lifestyle today!

Fortunately, research in behavioural finance suggests that people can be nudged to save more. In one experiment, subjects were divided into two groups.

One group was shown a virtual image of how they will look in old age. The other group was shown young faces resembling themselves.

Both groups were then given some money and asked to allocate the amount among several alternatives including spending and retirement. The group which saw their older-self allocated more money towards retirement than the other group! Why?

We tend to save less because we are emotionally detached from our future-self and, hence, from saving for retirement. The experiment made the subjects look at their older-self. And that triggered their emotions, prompting them to save more.

While you cannot virtually see your older-self, you can make friends with old people just to understand the problems faced by retirees.

That could, perhaps, prompt you to save more. But be sure to set-up auto-debit facility to channel your savings; for if you stop relating to your older-self, you may not save enough!

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Let your goals outline the financial planning

Sumeet Vaid, Financial Chronicle 26/1/2012

source: http://www.mydigitalfc.com/personal-finance/let-your-goals-outline-financial-planning-053

Budgeting is a spit-worthy word… Tell me honestly, how many of you have written down the details of every penny you spent on a piece of paper and then lost your peace of mind after looking at it. Every time I read personal finance articles that talk about maintaining records of all spending, cutting down on wasteful (read enjoyable) expenses, it puts me off. Why on earth are we working so hard to earn money, if we can’t indulge a bit? Any activity that does not make you happy is not worth doing. I think, it’s this fear of having to do budgeting that stops most people from doing financial planning. And I would say, fair enough.

Truth be told, budgeting sucks the energy out of activities meant to excite. It destroys peace around family dinners and makes you feel old and vain. Yet, it is important. It is the foundation on which wealth is built. Knowing how much money comes in and goes out is essential to determine how much can be put aside to reach goals and build wealth.
So, is there a way out? What is it?

I think, there does exist a way out. I’ll share with you, what works for me and for my client members. Don’t start financial planning with budgeting.

Start with your dreams, goals and aspirations. What is that thing that you want to do with your life? With your time? With your money? Think ahead into the future about the responsibilities you will have to fulfil, the dreams that you would like realised, the causes that you would like to support.

When you have put down your goals and aspirations, remind yourself that all this mean money. Find out or take some help to figure out how much money you will need to put your children through college, to go on that promised world tour and to establish a trust that will support a social cause.

Instead of fretting about the budget, work backwards on how much you will need to put away today and every coming day to live your dreams. Commit yourself to putting away whatever is necessary.

As soon as your salaries hit your bank account, move the amount required for reaching your goals to the savings account, and from there, to the designated investment vehicle. You can work around your expenses with the rest of the money.

Now, if the above has been done, you don’t have to bother about what you spend where. As long as you are meeting the requirements of fulfilling your basic needs and not borrowing, go ahead and spend. Don’t bother budgeting, earn a reprieve.

Don’t count on discipline, self control and the likes. Instead, automate your payments of credit card bill through ECS.
You can be rest assured that when your goals come due, you will have money. And you do even now, to spend as you please. No emotional baggages, no guilt, no month-end fretting — just lot more wealth.

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Mukesh Dedhia, Financial Chronicle 12/1/2012

source: http://www.mydigitalfc.com/personal-finance/put-your-finances-order-breathing-last-906

None of us want to think about dying, but death will happen to all of us sooner or later. For most of us, the concept of ‘later’ often results in many of us putting off decisions or expressing last wishes that really should be discussed now. Planning for your death now, saves a bereaved family from having to second guess your intent.

Thinking about death can be frightening, no matter your age or medical condition. As we get older, the reality of our own mortality tends to come into clearer focus. This doesn’t make talking about death or life-sustaining treatments any less frightening though. We live in an age of planning where we plan everything from what to eat for lunch to where to go on the weekend. So, why do we find planning for our death so difficult?

There are good reasons to break the taboo and not only think about our death, but also discuss it with the closest people, because there are important decisions to be made in advance. For example: We may have an idea about how we would like our funeral to be arranged. We might have views whether we would prefer to die at home or in hospital.
We would probably wish to have time to spend with family and friends and to have an assurance that our final hours will be comfortable. We would probably also want to leave our affairs in good order, and be confident, that our friends and family are left with good memories. As hard as it may be to face the inevitability of our death, it can be valuable and reassuring.

For some reason, death frequently brings out the worst in people. It is supposed to be a time of closure, of respect and remembrance, but it quickly can turn into a huge family feud over everything from how you will be buried to where and when.

For people with reasonable assets in their name, dying without leaving a ‘will’ may cause problems for surviving relatives; often needing lawyers to sort them out. Start by making a list of all your possessions and the people or charities you want to provide for, including any property you may wish to divide in a certain way. A ‘will’ can also name guardians for any dependent children, and record your wish to leave money or property in trust for children or grandchildren. When changes, such as divorce or a new addition to the family, happen in life, the ‘will’ should be adjusted.

Often when someone dies, there is an opportunity to save someone else’s life by making a body or artificial body part donation. Many bereaved families take comfort in the knowledge that the death of their loved one has helped others to live. This is an opportunity to change someone else’s life by giving the gift of life. Others have taken another route and chosen to give for medical education or research. This is a very personal decision. Take some time and feel free to discuss it with your family, religious leader or friends.

Many of us wish we had talked more to a parent, friend or colleague who has died, to have said “Thank you, you were so important” or “Don’t worry, it didn’t matter” or to have heard the same from them. It is recognised that unfinished business can cause physical as well as emotional pain that can linger for years. It is sad to lose someone to death, but it’s even more saddening to lose someone to life. So, its better to say “Sorry” today, rather than wait for the last moment.

For many people there is a spiritual aspect to approaching death that may be beyond religion. Questions such as, “Why this is happening to me?”, “What was my life about?”, “Who am I?” and “What is going to happen next?”, go to the limit of our understanding and our ultimate spiritual concerns.

Silence itself may be one of the best ways of communicating spiritual concerns, whether it is by sharing silent contemplation or meditation or just being with someone, holding their hand and perhaps holding their gaze.

Putting your affairs in order:
This isn’t about having tidy files; it’s also about leaving instructions on where everything is kept. This will save your family having to search through piles of papers to find the information they need at a time of great stress.

The instructions could include:
>Details of your bank, building society, credit cards, pension, tax district and any other financial contacts.

>Telephone numbers and addresses of close and distant friends, family and colleagues.

>Where you keep documents such as your passport, house deeds, insurance, life and other policies, mortgage and hire purchase agreements, birth and marriage certificates as well as items like car and house keys.

Many times death happens before we are prepared for it and our loved ones are not only forced with the shock of our early demise but also with the costs involved. No matter what age you are, you should be prepared for your death. No one is born knowing the exact time and date that they will leave this earth and avoiding that it is going to happen is putting an unneeded burden on your loved ones.

No one can escape the pain of bereavement, but a good death can become the ultimate celebration of a good life.

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