One financial planner met a client and had the following details:
A 38 year old man with a daughter from an earlier marriage (age 11) a son from the present marriage (7 years) a housewife, parents needing support and a mother in law dependent on him. (5 complete dependents, daughter partially dependent – his ex wife is earning well)
He had bought a house for Rs. 60 lakhs (market value Rs. 3 crores), doing his own business (financial planner ‘feels’ that the client earns about Rs. 20 lakhs. He has a 45 lakh borrowing on this house. He drives a Toyota Corolla – about 3 months old. He is in a capital intensive business and the planner has no idea about his bank borrowings, but they do carry his personal guarantee.
He has all his money in LIC’s endowment plans and believes that the money is safe only in government ‘investments’ like LiC. Does not believe in mutual funds, has dabbled somewhat in equities, but as is to be expected, with terrible results – investments of Rs. 5 lakhs is worth close to zero.
Lifestyle expenses (visible to the planner) seems to be costing Rs. 1 -1.5 L a month, but again a guess.
I have NOT given this case study to ask for a solution, but at the gaps of what the FP told me. The Planner did not know the following details, and to me they were important:
1. How much were his household expenses
2. What was his income – real one, shown to IT, hidden, ….etc.
3. What was the income trend in the business?
4. Personal balance sheet
5. Personal goals, expenses, spending habits, vacations, ….
6. Was his current wife capable of earning or not capable of earning
7. Amount of life insurance, premia paid, maturity,….
8. Financial personality characteristics – spend thrift, ….etc
9. Was he a good businessman or a lucky one? Will his income continue, if yes for how long?
10. Personal guarantees given to the bank? Was the house pledged only to the housing loan company or to the bank for a business loan too?
obviously if I had met the client many more of these questions will emerge…as will further questions based on these answers. This planner just wanted to sell him some mutual funds….and perhaps a pension plan.
It is nice to call yourself a financial planner, but please, please, behave like one.
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