Source: The Economic Times.
Everybody has dreams, dreams for themselves, dreams for their families. To fulfil these one needs to back up earnings by investing wisely. Most people work hard and earn money but when it comes to financial planning and actually going ahead with it they don't care much.
What is Financial Planning?
Financial planning is "the process of establishing financial goals of an individual and his/her family and meeting them through proper management of his/her personal finance". The financial goals may involve buying a home or a car, children's marriage and education, funds for medical treatment, retirement , vacation abroad etc. Most of us deem financial planning either as tax planning, insurance planning or investment planning, which is not true. In fact, financial planning is a holistic approach integrating all aspects of our personal finance. The discipline of financial planning involves, among other things - asset allocation, debt management, employee benefits, estate planning, risk management etc.
Planners vs Advisors
The job of a Certified Financial PlannerCM (CFPCM) professional is to devise a financial plan for his clients keeping in mind their goals and subsequently identify various avenues of investment. FPSB is an international professional body of financial planners which aims at improving the integrity and ability of people giving financial advice. Consumers need to differentiate between planners and advisors. You will find many self-proclaimed & company designated financial advisors in the market, selling or giving advice on mutual funds, insurance, equity shares, bonds, deposits, small savings schemes, loans, income tax etc. but most of them lack knowledge, competence & skills of a professional in the true sense. Many financial services organisations have realised this fact and have initiated professional financial planning for their clients. The issues related to financial planning and importance of a financial planning professional can be amply brought forward by the given example: Nikunj goes to his bank where his personal banker tells him that XYZ mutual fund has launched a new scheme; the fund will invest in both mid-cap & large-cap exploiting the market opportunities. Why don't you invest some money?" Every year in the mid of January, Nikunj gets anonymous calls "Good Morning Mr Nikunj, I am Jennifer from XYZ Life Insurance and we provide financial consultancy. I would like to introduce our product in which you can make investments to save on your taxes plus you will get a life cover too." These are just some of the circumstances under which not just Nikunj but many of us make our financial decisions. If only you have a financial planner who would understand your financial goals and advises products based on your needs and not based on his commissions or targets, life would have been much simpler and peaceful with regards to your financial health. There have been major examples of mis-selling in the past where scores of investors ended up with losses, investment in stock markets not being the only example.
Money Well Spent
It is important to understand what you are going to pay for the services of a financial planner. Financial planners usually get paid in one of the following ways: with a fee, by commission or a combination of both. While fee-only advisors typically charge a flat fee on an hourly basis or a percentage of the assets they manage, commission based planners earn their money by selling stocks, bonds, mutual funds, life insurance etc. It needs to be appreciated that although the product manufacturer may have its own structure for asset management like load, asset management fee etc, it is also important to appreciate the need for such products to be testified by a qualified financial planner. Hence the fees payable to him would be well justified based on the merits.
Get a Specialist
A number of options are available amongst the financial service providers such as CA, CWA, CS and CFA. Each of these professions are respected in their respective domains. Nevertheless, there exists a field of respective specialisation accordingly. We need to take an informed decision based on the areas that need to be covered and the scope involved. So while a chartered accountant specialises in accounting, taxation & auditing, a company secretary specialises in company law, a cost and works accountant in costing, a chartered financial analyst in portfolio management and investment analysis and an MBA finance in general finance and management. A certified financial planner on the other hand has insurance, retirement, investments & taxation, employees' benefit, estate planning as areas of specialisation. As more people call themselves financial planners, finding the right professional to address your financial planning needs is not always easy. Consequently, you should take your time to select a financial planner. Before making a decision, become familiar with the planners' business style and understand the level of services he provides. Look for a measure of the planners' commitment to ethical behaviour and adherence to high professional standards. Look for a planner who will put you and your needs at the centre. Actively participate in the decision making process along with your planner and discuss your investment needs in detail.
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