• He helps with filling up the form
• He knows what is happening in the industry and will be able to give some useful advice
• He will co-ordinate with the fund house or the insurance company – and most clients find that pretty painful.
• He will handle the claim if it comes to such a situation
• He is authorised and qualified so he must be adding some value in the transaction
• His services are FREE!! HA HA
• He might actually share his commission, will he not?
• He chases, comes home, does all the paper work, reminds…what more can I want? LOL

All this is perhaps true, but let us look at the risks:

• He might give a sub optimal product based on his limited understanding
• Most agents do not understand insurance – medical, life or even simple risks
• The agent may go out of business soon – and you will again be looking for a new guy/gal
• The agent may die before you do…:-)
• If the agent switches loyalty, he may not service the older products he has sold…
• He may fight with the main company – and put your product in a jeopardy!

so be careful in buying a financial product…

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Planning for a secure financial future is a must! It can be done, and is not easy, but is not rocket science either.

Maybe you’re saving to buy your first home?
Perhaps starting your own business is a dream.
The costs of a college education have spiraled and you may wonder how you will pay for your child’s education.
You will probably live longer. Additional years after retirement WILL cost more than originally planned.
Your company pension plan may not be enough to maintain your standard of living after retirement. Worse, it may cancel the pension plan by the time you retire!
Complex financial marketplace and changing tax laws make it difficult to understand your financial picture.

Everyone needs to plan for tomorrow. At every income level, there are steps you can take to make more efficient use of your assets and to ensure a secure financial future. It makes sense to develop well-defined goals and to map out appropriate strategies to turn your dreams into reality. To help you get started, below are some frequently asked questions about personal financial planning.

What is personal financial planning?

Personal financial planning is a process, not a product. It is an organized, well-planned system of developing strategies for using your financial resources to achieve both short- and long-term goals. You may think of the process as helping you to answer three straightforward questions:

Where am I?
Where do I want to go?
How do I get there?

When should I start planning?

It is important to start planning as soon as you can. Time passes quickly – it is never too soon to start planning for tomorrow. Nor is it too late to start a plan.

Who should prepare my personal financial plan?

A well-qualified financial adviser should work with you to prepare your plan. A CA financial planner combines the objectivity and trust long associated with the CA profession and the years of experience and expertise in personal financial planning. However, if he does not do this for a profession (most of them do not), look for a financial planner who is a full time professional.

What should it include?

A comprehensive and complete financial plan – one that addresses your entire financial picture – should include a review of your net worth, goals and objectives, property and other assets, liabilities, cash flow, investments, retirement planning, estate planning, tax planning and insurance needs, as well as a plan for implementing your goals.

I don’t have a lot of money. Do I need a full-scale financial plan?

You may not. You can seek out different levels of financial planning advice, from counseling on a particular issue to comprehensive planning. Speak to the advisers you are considering and discuss with them your requirements. You should be able to find one who meets your needs.

What role does goal-setting play in financial planning?

It is important to list both short- and long-term financial goals on paper. You can then rank the importance of the goals. If you are saving toward something tangible, instead of just saving, it may be easier. These goals could include: available cash for emergencies, education for children, care for family members, retirement, a nest egg to permit a career change, acquiring or selling a business, estate planning, financial independence or personal objectives such as a special vacation or second home.

How do I know how much I am worth?

One of the first things that you should do in reviewing your financial situation is to determine your net worth. Many people are surprised to find out how much they are really worth. First, estimate the value of your assets. If you have owned your home for a number of years, you may be sitting on a nice nest egg. Several different real estate appraisals will help you determine its worth. Organize bank, mutual funds, insurance policies and brokerage statements and record their value. List your liabilities such as housing loan, car loans or credit card debt. Subtract your liabilities from your assets and you will have a good estimate of net worth.

How can I plan for tomorrow when I can barely pay for today?

Create a budget. Determine what you actually spend each month. It is easy to keep track of large expenses such as mortgage and car payments. The variable items such as food, clothing and entertainment are often what get away from us. Write your expenses in a diary or an excel sheet – it is far more efficient than the human memory. The human memory is selective in remembering. Excel and diary are not

How much should I be saving?

It is hard to apply a rule of thumb toward savings, because it varies with age and income level. Ten percent of CTC is a good start. If that amount is too high for you, do not let that deter you. You can start by putting a little money aside each month and slowly increasing it.  You should save as well as invest.

How does insurance fit in to the process?

Evaluating your insurance needs is part of personal financial planning. The insurance industry has changed a great deal over the past few years and there is a wide array of new products. Some of them may be better options than your current coverage.

Do I need a will? – not sure, if you are SURE that you are NOT going to die, you do not

Everyone needs a will. Whether you are single or married, you need a will. No one but you knows how you want your estate divided after your death. It is especially important if you have children. If you do not have a will and both you and your spouse die, the court will appoint a guardian for your children. Maybe you would have chosen someone else.

How often should I update the plan?

It is good to review the plan when there is a significant life event such as marriage, birth, death or divorce. Any change in financial position should be evaluated as well. Many people have an annual update that reviews how the plan is being implemented. The review also considers changing goals and circumstances.

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was a call that I handled this week.

I said:

Gee, frankly I do not know. It takes a great mind to say “I will charge you Rs. 24k, but honestly there is not much to do. And if you do your Rs. 250,000 per month SIP with me under my code, I will rebate the commission for the first year from the fee that you pay me. Take term insurance from the cheapest source on the net. Take your medical insurance from a government run organisation (internationally Ergo and Alliance are great claims payers – but I have no clue how they will behave in India where medical records have no legal sanctity).

So I asked him more details about the financial planner. He had promised to

monitor the portfolio on a regular basis (I am still wondering what this means since I heard it 30 years ago),

will anticipate the changes and do a portfolio shuffling on a YEARLY BASIS (to me this was suicide),

choose a Pension Plan and a Child Plan (to me this was amusing)

choose a term plan and a medical insurance plan (he was choosing the MOST complicated company)

do a cash flow (what if analysis for 30 years including what would happen if he lost a hand, leg, heart, life, etc.)

do a cash flow projection for him during retirement (this guy is now 32 years old)

do an annual review for a fee of Rs. 5000

be available for 3 hours during the year for any discussion

The client had a choice of where he bought mutual funds from (he would be doing a 1 year SIP and at the end of the year decide whether to continue based on the performance), BUT the life insurance had to be bought through the financial planner.

Frankly from the clients point of view this was NOT  a good deal, nor was the client capable of doing it himself — he was damn too lazy.

I had no alternatives to suggest….last I know his wife was tugging his shirt collar saying “Yeh sirf gyaan deta hai….WE NEED TO DO SOME THING..so what if it is wrong, we are smart enough to handle adversities, are we not”.

God bless.

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Now that the interest rates are market driven will we change our bank account?

To me the answer is NO. A capital no. Because once you are with a bank all your financial transactions are tied to that account. So you will end up being held by the bank with at least 8-10 tentacles. I was going through my savings bank account and I found most of the transactions are automatically going to the bank account. I have about 100 credits annually apart from dividends COMING AS A DIRECT CREDIT.

In fact my banker told me, half in jest, ‘try changing the bank account’ – I CANNOT.

So if Kotak bank was to offer me 6% p.a. interest, how does it matter to me – I am too damn lazy to make changes (and I agree with the banker too – opening an account is too damn painful).

So what is the choice? Just transfer say Rs. 500,000 to a sb a/c with Kotak Bank and collect a higher interest. My main bank is unlikely to increase interest rates – but I will live with that.

I think if there is a sensible bank offering a nice rate, open an account and leave enough balance ….anyway if you are leaving Rs. 1 million in your bank – you might as well leave Rs. 300,000 in 3 bank accounts and earn a higher interest!

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Frankly I do not know whether a person needs a financial planner or not. A financial planner has so much of responsibility and work to do that he/she does not do it! In fact I do not know any financial planner who does all that which I think a client needs to do. Worse is when the client does not know what is crucial work and what is clerical work.

Many clients will go to a financial planner – and do what they want to do. If you appoint a coach you should listen to him. However many financial planners are nowhere near capable to do all the onerous tasks that they are supposed to do. So what does a client do?

Many financial planners are biased – the money in selling is still much much higher than in consulting. The odds are against the small investor who makes no attempt to learn many of these simple steps.

If you expect your planner to monitor your portfolio frequently, monitor markets, understand the political situation, anticipate changes in the market – and therefore realign your portfolio, track world markets, commodities, track interest rates, be able to help you in your loans taking, pricing, choosing the car (oops!), give advice on whether you should change your job, decide whether your kid should study in an International School ,etc. you could be in a rude shock.

If the planner is not from the same class as you are – or has no ability to understand your aspirations, he could suggest inappropriate products. If he is biased towards ANY product (many of them are tied life insurance agents), the chances are you should look hard. It is virtually impossible to be able to sell all insurance and pension products – so the sales will be of a product that he represents, right.

How is this a problem, you ask? Well last week one kid in our office bought a term plan from Aviva – because it was the cheapest for a 27 year old buying a 28 year policy. Now 6 months later if a 35 year old wants to buy a term plan for 22 years, – and if the cheapest plan is by Religare  she would buy it from there. If both of them had actually gone to a ‘planner cum agent’ – they may have ended up buying a Max New York life term (or worse, ULIP) because that is the AGENCY he had. Also it is (today) not possible to buy a policy ONLINE through an agent – that nixes many good intention in the bud!

A good set of  questions to ask your potential financial planner is:

- Do you yourself have a planner?

- why not?

- where are your written goals? show it to me NOW…

- which plans have YOU invested in?

—can give you a dozen more after you have asked these basic questions…:-)

also read this:

http://www.subramoney.com/2008/01/financial-planner-do-you-need-one-at-all/

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1. I do not earn enough to seek the services of an advisor: Well, well anybody and everybody thinks that their income is just too small for them to seek the services of an ‘outsider’ with whom to share their finances. If their income were just a little more (on an average about 30% more) they would need a person to tell them on what to do with their money.

2. I am a CA (MBA, or any other degree can be substituted as per the situation)- and I know to do my own financial planning. My view: no education in India prepares you for handling personal finances. It has to be a combination of education, networking, experience, meeting people in various industries, etc. which helps in becoming a good adviser – not just a degree.

3. My Dad (Mom, friend, grandfather, neighbor, ....substitute any word) handles my portfolio! – Well if he has not set the Thames or the Ganges on fire he may not be the best adviser. However it is impossible for the ‘outsider’ to ever give an answer contrary to the ‘home bound’ adviser. God save the adviser if he dares to argue with the ‘Dad’. Afterall Dad WILL NOT CHEAT, WIL HE?.

4. I have done SIPs in Hdfc top 200, Icici Prudential Discovery, Reliance Growth, Reliance Vision, DSP Top 100, Birla Sunlife Tax Saver, Sundaram Taxsaver, Kotak K30, …and about 10 other funds. I do not need an advisor to tell me this, na? An adviser may not have done things different from what I have done, so why incur the expense of an adviser? I keep seeing valuable websites and change the schemes as their performance starts slipping. I shuffle my portfolio about once a year – and save valuable ‘fees’ that the adviser would charge me every time there is a change in the portfolio.

5. I just bought a nice big house in Mumbai for Rs. 1.35 crores – and did not use an adviser. Why should I use one when I do a small SIP of Rs. 50,000 per month?

6. I do not want anybody to know where I have invested, what houses I have bought, which equity shares I have bought, etc. so I do it myself.

7. I do not like mutual funds – I do my own portfolio construction. I have a clear 3-5 year range – and I normally hold for about 4 years. I invest only in blue chips like L&T, SBI, Hdfc, Tata Motors, Ntpc, Hindalco, etc. Even though currently my portfolio is about 30% down from the purchase price, I do not have any loss booked. I will sell only after I recover my costs.

My view: L O L, what else to do except laugh?

8. My broker is my adviser- he tells me what to buy, so I do not need an adviser,

9. I work in a bank – and I know what to buy and what sectors will do well. So clearly I will invest what my RM tells me, I do not need an adviser.

10. I have a ULIP and a few Endowment policies – what can an adviser do for me that I have not already done?

8.

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You have just crossed your 24th birthday, when you’ve gained the education and/or skills you need for the career you’ve chosen, and you’re earning money and learning how to handle it. Ok, ok you are not in your twenties but are in your thirties and have started looking at financial planning. Fine, this article will be just as applicable to you – only that the time advantage of a 24 year old is not available to you.

AN EARLY START!

Remember the importance of an early start in a One-day International cricket match? Remember the heroes? An early start ensures that the middle order batsmen can play with lesser stress and strain. Similarly there’s no time like your twenties to start putting your money to work for you so that you can achieve your financial goals throughout your life. Developing good spending, saving and investing habits, and learning to budget and invest during your twenties, can help.

You prevent needless debt, put away money for the things that are important to you, and take advantage of the power of compounding. In fact, compounding of earnings is so powerful that those who start saving for retirement in their twenties can amass large nest eggs with relatively little effort, as long as they invest regularly. Also remember retirement is not an age, it is a state of mind and a particular level of asset accumulation. If retiring means doing what you can rather than what you must, maybe you may want to retire at 37 instead of 55.

For an example of the power of compounding, take a 23-year-old who invests a paltry Rs.10,000 a month – he will accumulate about Rs. 15 crores for his retirement. Contrast this with a difficult Rs. 51,000 for a 35 year old to accumulate the same amount. Not bad for an early start right? And I am increasingly seeing young people starting 25 year SIPs…surely these kids will benefit by the long term compounding effect…

GOALS! The first step in planning is to identify your goals. In most financial planning exercises, this is the most difficult task to achieve for most of the people that I meet. Your short-term goals (five years or less) might include a wedding, buying furniture, a new car or a career changing higher education, doing your own business, or more lofty ones like dedicating your life to social services.

Next, think about medium-term goals, such as owning your own home and financing your kids’ college educations.

Finally, list your long-term goals, such as retirement and travel.

Remember all these goals have a financial implication. All of these goals will mean some sacrifice of present consumption for a benefit in the future. You need to feel very strongly about these goals. To use a typical MBA term, you need a personal buy-in.

This article can at best motivate you into some action- but you need to be motivated enough to pick up the phone and make that call or send an email! Estimate how much money you’ll need to meet each of your goals, and determine how much you need to invest each month to reach that goal within your time-frame. Planning is a word document, budgeting is putting the plan in excel. When budgeting, set aside money to go towards your short-term, medium-term, and long-term goals. Try not to sacrifice one for the other. And try to prioritize them. Understand that since we all have limited means of income and too many goals to achieve, there will be conflicts. You need to resolve them.

Too many of my clients ask me to prioritize their goals. Sorry this is your job as a client.

Is your daughter’s wedding more important than your retirement goal? I do not think so. However if you do think so, so be it.

Just do it! It may be wise to invest in Savings Bank accounts, Mutual funds, etc. for your short-term goals, and unit linked policies for your medium and long-term goals. Historically, the stock market has outperformed any other type of investment over time, but it’s not for the faint of heart.

Its volatility makes it a less than ideal investment for short-term funds, unless you have a very high tolerance to volatility. Remember equity or debt is never the question – it is only how much of each. You can enter the equity market or the debt market through vehicles like Mutual funds or unit linked policies. As an ad for a shoe company says, “Just do it”.

It is better to implement a plan while waiting for the “best plan for the year” . With the wealth of information available on the internet, it’s never been easier to learn how to be a smart investor. You just need to know how to separate the information from the noise.

ps: I do not believe that unit linked plans should be bought by people who do not know how to reverse engineer a product and break up the components of costs.

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Me: Thank you

He: Sir, are you a Chartered Accountant?

Me: Yes sir..

He: Will you file my Income tax Return?

Me: No sir, i do not do that work…

He: What work do you do?

Me: Regarding investments..

He: Arre, will you manage my portfolio…I bought some shares of …

Me: No, no I am not a portfolio manager

He: Will you advise me on how to manage my financial life?

Me: I can, but not sure whether you will listen to me. NOrmally I deal only on the investing side. I really do not understand Real Estate, Gold, etc. Nor do I understand market timing. I do not understand rating of mutual funds.

Worse. I do not know anybody who does, and is willing to work for me.

He: All this is very confusing, will you be my financial planner?

Me: I would have been. However, Debashis Basu of Moneylife and one more person who gave up his CFP education say you do not need a financial planner. So I am confused about what you want from me too!

He: Sir ‘What can you do for me?’ I want to be engaged with you for my investment, tax, …etc.

Me: Come and meet me. I will charge you a per hour fee. Make your investment through my code. This year it will be 5 hrs. Next year 2 hrs…in 2016 YOU SHOULD NOT NEED ME..there will be nothing that I will have to tell you..In fact if you are very smart, you do not need me now itself!!!

He: Thank you, Sir, what is this post called?

Financial Coach. India’s first financial coach, perhaps? L O L

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Well if I were to write a book on financial planning, I could write a few chapters on this topic. One thing however he MUST do is ask you a lot of questions – some painful. For example when I talk to a new, unknown person who wants some kind of help in planning, some of the questions they find difficult to answer are:

How do you feel about begging? (Yuck!).

If you wiped out your portfolio whom would you turn to for food? Will you be able to ask?

If you have enough money why are you working?

If your wife wants more time with you, will you quit your job? And let the trip to Switzerland vanish? What is more important – your wife’s ‘public posture of wanting time with you’ or her real stand of ‘a holiday in the Alps’?

When you know that you are not disciplined to control your spending, why do you go to a mall with your credit cards?

If you were to ‘help’ somebody, and that person took the money to spend on something YOU THOUGHT was frivolous, how would you react?

Have you ever stolen as a child? Did you confess to your parents? If not, can you do it now?

Do you have much more money at age 55 than you thought you will have at age 22? If so why are you working?

Because you can afford a few more THINGs than your father (perhaps) do you consider yourself more successful or lucky to have been in a higher growth rate economy?

..why so many questions?

Because answer to all this SHAPE your attitude towards money. Not just what you have in the bank. Money to me is a commodity – and lets you buy what you THINK you need at a point in time.

Too bad it never asks you 30 minutes later whether what you did was sensible or not

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Here are some of the suggestions:

1. Simple, go to Google and find him / her.

2. See for well qualified people: Caveat: We are all well qualified people so we have a vested interest in making this suggestion. Since people who read all this stuff online, we will always say this and you will believe this. God bless all of us.

3. Look for a very, very rich distributor: If he is worth a few billion rupees, he may not harm you too much – it may not be worth the effort.

4. Look for people with vast experience: like a person who has spent 38 years in LIC. It helps because he may not know how all he can make money out of you, so you are safe slightly.

5. Look for people with industry awards: there are many industry awards like MDRT, etc. which means this guy has sold well. It is proof that he can sell well. Will he sell products suitable for you is your problem, not his. Only make sure you are not privy to his private conversations when he is in those groups. If you hear words like ‘chipka diya’, ‘so much wool in his head it was easy to pull it over his eyes’ , ‘Malaysia mein majha nahin, is saal Europe jana hai’…well they are talking about you.

6. Your nephew, niece, neighbor, that pyt from the bank: all similar so it does not matter whom you pick. Picking has no connection to competence – so what i say will not matter.

7. If after all this you do find him, ask him ‘Why do you still call it practice’ – and er..what do you refer to me as in your ‘practice’…I asked my doctor also but his English was not as good as yours…:)

Ok let me cut all the skepticism.

Simple: Get a savings bank account – one in a private sector bank and one in a public sector bank.

Get 2 credit cards: one with a limit of Rs. 50,000 and one with a limit of Rs. 500,000. Keep the big card at home and the small card in the purse. Use the small card online, offline, on the phone, etc. and pay off on time. Use the big card once in a while to keep it alive. Use it only in a very big hotel where u feel secure. Use the big card for an emergency if you need to admit somebody to hospital. Otherwise keep it under  a lock and key.

Get a term insurance FROM A COMPANY YOU TRUST. I have a friend who has bought term insurance from the cheapest company, ONLINE and every time we meet he says ‘I am sure they will not pay my wife….’. Then why buy? So please buy from a company YOU trust, but BUY it online.

Put money in equity funds with more than Rs. 7000 crores in assets under management – if you do not know how to locate them put it in Templeton India Index fund or in an ETF.

caveat: I am not a big fan of Index funds in India.

Make a will, communicate it to your kids.

If you think this advise is enough, go to www.amarseva.org and make a nice donation. They need it for doing a world of good to the kids in the world. or go to www.akshayapatra.org or go to www.ishafoundation.com ….or choose your own charitable organization, but tell me about them in the comments column.

Then chill.

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