Even after a decade long presence of structured Financial planning in India, still it is considered to be at its nascent stage. The reason is low awareness among the people. Even those who are aware ignore this as the professionals doing genuine financial planning are also very less. To add to the confusion the term financial planning is not regulated and so every second person can call himself a financial planner . There are some who ignores it by calling this an approach meant for wealthy or young .
I have tried to compile few FAQs on Financial planning which was asked in group presentations or specifically asked to me on email. Hope this will answer other people queries also.
FAQ 16 I am a professional/self employed/business person and not sure on my personal financial situation as my income and expenses are mixed with my business. How would a financial planner be of help?
A) – Financial planning has been into existence since ages. But it has got a structural shape only few decades back. Financial Planning in very simple terms means planning of your finances. Finances mean money and whatever you do with your money involves financial planning. Individuals have been practising financial planning for centuries. Every individual who’s in receipt or possession of money have to make decision about the best way to use it. Typically the decision is to either spend it now or save to spend later. Financial planning helps you in making such decisions in a best possible tax efficient manner. Financial planning is a process to determine where you are, where you want to be in future and what you should do to reach there comfortably.
There are some misconceptions on this service, as few people thinks that financial planning means investing in mutual funds or insurance, few think that this is a way to save more on taxes, many think that financial planning can make them very rich etc. But in reality the purpose of financial planning is to make you disciplined in your financial life, teach you to respect your money and treat it properly and also help you get the right amount of money at right time without compromising on your basic expenses and lifestyle.
A)- A financial plan is a written document carries the in depth review of your financial position and guide map that shows you how to achieve your goals and objectives. A financial plan document carries the steps to be taken, protocols and processes to be followed in the financial life. It involves cash flow and budgeting, Debt management, Investment planning, Tax planning, goal based advisory, Estate/distribution planning (Creating WILL, Trusts etc.). It is a step by step guide to achieve your financial goal.
A)- Not at all. Writing of financial plan is just a starting point. As your financial position impacted by many internal (personal expenses, desires, health, inheritances, family functions and responsibilities etc.) and external (taxes, inflation, economic and job scenario etc.) factors, so your plan has to be timely reviewed, tweaked upon to make the necessary changes wherever required. Financial planning is a continuos process in which a financial planner will do the handholding and guide you through your financial life as per the financial plan.
A)- Anyone can call himself or herself a financial planner or advisor. That’s why it’s essential to be sure of the qualifications, credentials, and compensation arrangements of a planner or advisor before you entrust them with your finances. A financial planner is an individual who will help you with the financial planning. There are Certified professional (CERTIFIED FINANCIAL PLANNERSCM) registered with financial planning standards board who specializes in financial planning. CFPs (CERTIFIED FINANCIAL PLANNERSCM) are recognised world wide. Otherwise the term financial planner is not regulated and any Mutual fund agent, Insurance agent, stock or real estate broker can call themselves financial planner. But their main aim is not to do a proper financial planning but to sell their products.
Going forward those who are into pure financial planning advisory have to be registered with SEBI under its Investment advisory regulation 2013, this will be an added advantage for the consumer to decide onto a genuine financial planner.
I my self is a CERTIFIED FINANCIAL PLANNER having 9+ years of work experience. Also very soon i am going to be registered with SEBI under new investment adviser regulations. (Read more about me)
A) – There are different sources of fees for a financial planner. Some of them are mentioned below:
1. Annual Fees from client.
2. Hourly fees from client.
3. AUM percentage charges from client.
4. Commissions earned from products while helping clients implement the financial Plan.
5. Referral fees earned from other agent/adviser
Planners work on different models and thus charges differently and their earning may be from all the above mentioned categories or in combination of some. Due to different models Financial planner works in they are termed as “Fee only” who charges a fixed fee or some percentage on AUM or Both, “Fee Based” who charges a fixed fee along with earns commissions from the products sold and “Commissions only” who earns only commissions and no fees gets charged to the client.
Its always advisable to engage a fee only or fee based financial planner, to keep the advisory separate from the investment management.
We at Good Moneying runs both kind of Models Fee only and fee based. It depends on client which model he/she wants to come select. After writing Financial Plan for clients , the implementation part from us is very much optional. But still if appropriate and at client’s request we help them in plan implementation by referring him/her to some other suitable agent/adviser. Read more on our services
A)- Every financial planner works under a process, as laid down by respective financial planning board of the country. And in this process the first step is to establish the relationship between planner and client. A financial planner will give you enough time to get acquainted with the process and formalities. It will always be a no pressure opportunity for you to discuss in details about the goals and other financial issues. After this discussion if you both agree to go ahead then financial planner will get signed a written agreement from you to get you formally into his systems.
A) – Great!! There’s no point to start the relationship if you don’t value the process in complete. As I explained earlier that financial plan writing is just the beginning of the ultimate process so you won’t be able to understand the value till the time you keep your mind blocked by looking at other people’s plan. Every financial profile is different from others, every risk profile is different, family values are different, Goals and responsibilities are different…so every financial plan is different. Moreover, it depends on the complexities you have already brought or are planning to bring in to your personal finances which will decide the complex structure of financial plan. You may copy other people plan but you won’t be able to bring in the value which is a financial planner’s job.
A)- This will always remain a point of debate. What planner’s charge is what they perceives or calculates is required to achieve their personal and professional goals and also is bare minimum required to run any professional business. What clients want to pay is what value they see in the whole exercise. I cannot comment on who’s charging less or high as every other planner has a specific calculation chart and expense structure.
You will find this difference in many other professions too. Some Advocates charge huge for one single court hearing and many others charge that much amount for a complete case. There are many doctors, chartered accountant who charge differently. One thing you have to understand that if your planner is not compensated well or is not able to achieve his own personal goals, he would not be able to help you achieve yours.
A)- Yes, you can. There are many software, blogs; self-help books are available in the market and on internet which will help you get your own financial plan done. But as I said financial planning is a process which requires regular reviews of the financial situation, tax laws, cash flow arrangements, investment performance, rebalancing of asset allocation , risk profiling , legal issues in case of estate/tax planning etc. If you feel that you can handle all such instances well and you have enough time available with you for that then yes go ahead.
A) As far as basic knowledge is concerned, yes financial planners are equipped with that . When they find some complexity in the profile which requires the preparation of some legal documents then they take help from other professionals like CAs or lawyers. And Charge accordingly.
A)- Financial planners advice on your financial life and the proper asset allocation as per your risk profile. They will discuss on the different asset classes be it equity, debt, real estate and gold and also advice you on products suitable for your profile. They may or may not advice on all product category but they can surely guide you on what is best for your personal finances.
Financial planners don’t run after returns but they focus on your goals. Infact they want their clients also to focus on goals only. With a regular review of the investments and rebalancing the asset allocation they help in generating the optimal returns required to achieve your goals and keep the volatility in line with your risk profile.
A)- As I said earlier that financial planning is not a new concept and every one of us do some kind of financial planning in bits and pieces. But these days due to so many changes, innovations in products, investment behaviour, tax laws, Inheritance issues it becomes inevitable to see the personal finances from holistic point of view. One should be aware as what effect his one financial decision will make on other areas of finances. And this can only be done through a structured approach which is Comprehensive financial planning.
You need financial planning advice at every step of your financial life and in all different circumstances be it changing jobs, comfortable retirement, Cash flow arrangement for a big purchase, life changing event like marriage, suddenly single, divorce, protection to family, leaving or receiving inheritances etc.
A) No one is neither too young nor too old to start with financial planning. Financial planning starts from the day 1 you enter in your financial life (the day you get your first pocket money) and till the time you leave inheritances for your children. Infact financial planning also involves estate planning so you can properly plan as to how you want to distribute your assets and liabilities among your children after your death. Its never too early to start with a disciplined life and its never too late even to accept your mistakes and follow a structured approach now onwards.
A)- Till date I couldn’t be able to understand what is the definition of enough income. No income is enough if you don’t have control on your expenses. Every one has some financial goals to achieve in life , some are certain and some can be avoided or postponed. Its all about priority. You just have to be disciplined and structured in your savings and spending approach. Financial planning will help you in everything.
A)- Even though you are doing good in your life, but still even rich people face many practical issues like risk of life, health, professional risk, distribution risk etc. So all in all unless you look at your financial situation and requirements in totality and holistically, you won’t be able to figure out if you are in right track or not. Moreover having good net worth at present is of no use if you find yourself in cash crunch sometime or leave disputes for your children later on.
A)- If you truly understand the benefits of financial planning than you will agree that Your profession or business should support your personal life. Financial stress in profession should not bother personal finances and vice versa. Both of these needs to be separate. Your financial planner will help you in separating out the both and guide you through your personal finances
A) Yes. You can say that. But a Chartered accountant specialises in corporate and business finance and a financial planner specialises in personal finance and investments planning. Even many Chartered accountants work with CERTIFIED FINANCIAL PLANNERSCM for their personal financial planning.
A- No doctor guarantees that the patient will get cured with the medicines he’s prescribing. Moreover he gets the declaration signed from patient or his relatives that he will not be held responsible if patient dies in the operation theatre. So is with Advocates, they never guarantee that they will win this case for you, but they assure you that they will do their best.
Financial planning is a common sense approach to managing your finances to reach your life goals. It cannot change your situation overnight; it is a lifelong process. Remember that events beyond your control such as inflation or changes in the stock market or interest rates will affect your financial planning results.
A- Financial plan is prepared keeping in mind all the possibilities which can happen in future. So there is no need to review the entire plan in mid of the year. Do it annually. If there’s some major change in your financial profile like loss of job, receiving inheritance or windfall gain, some accident etc. then it is better to review the plan in mid of the year. But you may review the different parts of plan like investments, insurance, taxes etc. on quarterly basis too.
A- Yes you can. I have explained above the different fee models on which a planner works. You may find other planners too who works on hourly basis or on project to project basis.
We at Good Moneying have recently launched Small services that suit this kind of investors. Click here to know more
A)- When we are working on your financial life we need to understand every part of it. Unless we have your expense details how can we work on the budget or surplus, unless we have your income details how can we work on taxes, unless we have your assets and liabilities detail how can we figure out if you are in right asset class or are paying high on interest…etc. Every area of your financial life is important to work on if you need a proper financial planning to be done.
A) Don’t lose sight of the fact that it’s your money and the final decision is always yours. You can ask for changes to the financial plan if you want to or you may decide not to go any further. It is completely up to you. If you decide to go ahead, your financial planner will discuss with you your next steps to put the financial plan into action. There may be some actions you need to take which may include surrendering your insurance policies, reducing your monthly expenses as per the budget worked on, paying off some of your loans out of your current savings etc. People who understand the real meaning and benefit of financial plan knows that financial plan is just a starting point and review the financial plan from time to time in line with changing goals and life stages- so your relationship with your finial planner may be long one.
Hope the above mentioned Financial Planning FAQs will clear your doubts on what financial planning and Financial planner is all about. But still if you have some more queries on this subject you can ask in the comments section below.