A proper financial plan may save nasty surprises

Probably, a booming economy and growing number of people with loaded pockets are the reason behind it. Or the new breed of certified financial planners are bombarding the media with the term could be blamed. However, the fact is that everyday one is faced with the question from someone or the other what is financial planning or wealth management.


Ramesh Iyer is not different. Having read many financial makeover stories and case studies, he is intrigued. However, he is yet to meet a qualified financial planner because he doesn’t know anything about financial planning. “Even after reading those columns I really don’t understand how it works. If I don’t know anything, anyone can trick me,” he says.


That sounds a valid argument. So, what is financial planning? “Comprehensive Financial Planning is the process of proper allocation of your financial resources towards your financial goals.

Just like you have a business plan in place, a personal financial plan is your blueprint that addresses four important areas in your life,” says a Certified Financial Planner (CFP) . The four areas are risk management, wealth creation, wealth preservation and wealth transfer.

“Wealth Management is a spiced up version of financial planning. Both serve the same purpose but wealth Management is certainly a good ego booster. However, financial planning and wealth management do differ in the terms of the wealth of the client and the bouquet of products and services offered right from budgeting, risk management, investment advisory, limited tax advisory & estate planning services”

A typical process comprises of five steps: data gathering, diagnosis of your current situation, preparation of the plan, presentation of the plan and review of the plan at regular intervals. For this Ramesh has to go to a qualified financial planner or a firm with qualified personnel. He also should be prepared to fill around 30-40 pages with his financial details, including his financial goals.

“Just like a doctor or a lawyer cannot give you advice without diagnosing your situation in detail, no fiduciary advisor will give you advice without considering your overall financial situation and goals,” says the CFP.

“Salespeople will typically come to you with a product and then try to fit it by highlighting a few attributes of your needs that the product addresses. It’s like a chemist coming to you and telling you that this new medicine will be useful to you and that it can address the long list of problems. No person in his sane mind will go any medicine without consulting his doctor but it mostly happens in the financial services world.”

Once a qualified person goes through the data you have submitted, he is in a position to figure out your current financial situation. This would allow his to prepare a plan that would help you to meet your various financial goals in life such as child’s education, your retirement among other things. Once a plan is ready, the person would discuss it with you and take your inputs.

If you think the plan suits you (in other words, you would stick to it), you can shake hands with the planner with a promise to return at regular intervals for periodic reviews. As you can see, contrary to Ramesh’s apprehension, financial planning is a simple process.

“People read financial makeover stories and start believing that it is a very complicated process. But the fact is that it is like diagnosing a disease. You have to get relevant details to do it,” says an investment advisor. “Once the relevant data is in, a qualified person can have a place for you.”

Why is there so much emphasise on a proper plan? “Most people think that their bank deposits, insurance policies, and some investments here and there would be enough to take care of their future needs. But this could prove just an illusion,” says the investment advisor.

“If you haven’t allocated enough fund for each goals, most likely you wouldn’t have enough money to meet those goals. That is why a proper plan is very important,” he adds. He gives the example of one his recent client, who approached him after his retirement.

“We realised that most of his dreams like gifting money to grandchildren and yearly holidays abroad will not be possible because he didn’t have a large enough corpus.”

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