Archive for certified financial planner

You must ask questions

December 12, 2009 at 5:46 pm · Filed under Financial Planning Process, certified financial planner, financial planning

Dear Reader

At Procyon Financial Planners, of late, we are seeing a distinct and welcome change in the attitude of the investors. It appears, all of a sudden, that there is a surge of interest amongst the investors about financial planning.  Invariably, investors are keen to know about qualification and experience of financial planners, number of clients they serve and so on.

Since the time we began our financial planning practice in Bengaluru (then Bangalore) in 2006, we are providing information to our clients and investors about the need for financial planning. So much so that some of our clients started complaining that we were much focused on financial planning! This change of questioning attitude augurs well for investors in general and young earners in particular.

Some times, we receive funny queries that are actually very long winding and seem to have been directly influenced by the literature available on the net in developed countries. I do not see anything wrong in this and in fact welcome this information seeking process before hiring your financial planner. At the same time, may I remind the general investor that India is almost three decades behind in adopting financial planning principles in the area of personal finance and very much at the lower end of the learning curve? You will find that a Certified Financial Planner in India can boast of only 4 year’s experience because it is only in 2005 the first batch of CFPs obtained their certification.  It is only now in circa 2009 that one of regulator has fleetingly mentioned that advisors should adopt financial planning process. Funnily, the same regulator has forgotten to define what he means by ‘financial planning’.  Investor seems to be ahead of both the financial planning profession and finacial regulation.  No wonder this is happening because we live in the age of seemless flow of information.

Investors must also keep it in mind that in India there are regulations pertaining to selling financial products but not enough about financial planning services. One regulator, with a recent regulatory intervention has in one stroke converted a class of product sellers to financial advisors. Does it serve any one’s interest that a product seller has to work as financial advisor with rudimentary regulatory frame work, without any specialised training and such necessities?  Dé·jà vu all over again? 

That aside, I urge investors in India to exercise the same diligence and questioning attitude when buying financial products as well. I am raising this particular issue here because I see a huge gap between the way an investor,

(a) queries a financial planner about the costs, services, past experience and so on, and

(b) goes through the process of buying a financial product.

Is it because the questions one should ask when it comes to hiring a financial planner are well documented in the World Wide Web and questions one should ask when buying a financial product are not so well documented?

If you apply the same principle of ‘question your financial planners thoroughly before hiring’ when you buy a financial product as well, you may probably not end up facing the huge gap between what is said and what is delivered.

This issue is particularly relevant if the reader understands the fact that there are millions of financial product sellers in India where as the number of financial planners are a miniscule part of that number.

It would be interesting to know how you as investor failed by not asking right questions or benefitted by asking the right questions when buying a financial product.

Regards,

Narendra

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Inflation – The Silent Killer

December 30, 2006 at 3:30 pm · Filed under Financial Planning Process, certified financial planner, financial planning, retirement planning

If you have watched Amitabh-Hema starrer “Bhaghban”, you would have sympathised with the retired couple and their travails. In one of the early scenes in the movie, when the character played by Amitabh is to avail a loan from his provident fund account, when he is asked about the appropriateness of his action, he quips that his children would take care of him! Personally, I think “Bhaghban” is an ideal guide for planning your retirement or rather how not to approach your retirement planning with such a casual attitude. And in the movie Amitabh plays the role of a banker!!

More than retirement planning per se, I want to highlight how the deadly silent killer called inflation would play a spoilsport with your retirement plan.

Inflation is variously defined by economists but for our discussion, it could be defined as a situation wherein there is an increase in the overall level of prices over an extended period of time.

As an individual you will have no control over inflation; however you will be greatly affected by it, more often adversely.

During your earning period, there are several ways you will be able to mitigate the effect of inflation, rising wages being one of them. However, it’s during retirement period, the effect of inflation would be magnified because your income is not automatically adjustable for inflation; you need to plan for this event.

Let’s suppose that during the first year of your retirement, you will need Rs.2.5 Lakhs to meet your needs. If there is an inflation of 5% in the economy, the general level of prices would increase by 5% in the next year. However, this will not happen abruptly let’s say on the first day of the New Year but very gradually. That’s why inflation is a silent killer. In the next year you will need Rs.2.62 Lakhs to maintain the same standard of living because all prices have gone up 5%. But returns from your investment (typically you would have invested in those investments which give a fixed and/or assured return) will not increase by 5% to offset the effect of increase in price level. This means, you will need to dip into your corpus (capital invested) or reduce your standard of living or a combination of both. You will not be happy with lower standard of living and if you dip in to your capital, you may end up with a situation with no corpus left out. It’s scary to be in this catch-22 situation. It’s even scarier because you have absolutely no control over the unfolding economic situation because you are neither the finance minister nor the governor.

How one would break this catch-22? Financial planner knows that inflation is a fact and it can not be wished away. One can not live with the situation also. So it’s to be managed carefully. Like an orchestra, many things have to happen simultaneously.

There are several strategies a retiree has to adopt in such a situation. Estimating impending inflation is easier said than done, that too when the plan is to be put in place several decades earlier to actual retirement. Other option would be to attempt to create a big corpus wherein the returns would be always more than the needs. Question is can this be achieved by all? What if the resources are limited? It is here the attitude of the investor plays a major role. With the help of financial planner, she must chose the type of assets she will own during her retirement period carefully so that overall income generated by the assets is always ahead of inflation. There are several such assets that are likely to generate a return adjusted for inflation – equity, growing annuity etc.

There is no substitute to the awareness of the fact known as “inflation” and being prepared to face it squarely with the help of your financial planner. Investor must also know the importance of ‘inflation-beater’ assets and should make them part of the overall portfolio both during the wealth accumulation/growth phase as well as wealth erosion/depletion phase.

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