Financial Planners role beyond preparing the Financial plan

After a lot of deliberations, Sanjeev had enrolled for financial planning services for drawing out a comprehensive financial plan for his family. After several rounds of meetings and data sharing the plan was ready and Sanjeev was extremely pleased with the work done by his planner.

Since the implementation was to be done by the planner, Sanjeev received the schedule of things to be implemented along with pre-decided time frame. In spite of the clarifications and explanations given by the planner on various issues related to the plan, Sanjeev was still not clear on some issues related to insurance, investment products and the asset allocation suggestions. He delayed the implementation by a few months and only went ahead when he got the clarity from his planner.

Most people who want to enroll the services of a planner do so because they themselves don’t have the time to manage their finances nor the knowledge of personal finance. It is therefore important for a financial planner to empathise with them and help them acquire the knowledge of the various aspects of his personal finance over a period of time.

Educating the client during the initial stage of the plan
During the initial interaction with the client, a few crucial aspects of personal finance such as risk appetite, inflation, equity markets etc need to be discussed to gauge the knowledge of the client on these issues and accordingly list down the aspects on which the client would require more guidance. A lot of times, most clients don’t have time to discuss these issues. They feel that their job is just to provide information related to their income-expenditure, insurance-investments and financial goals. The planner has the responsibility to inform the client on the criticality of understanding aspects which are beyond numbers.

Role of planner after construction of the plan
The main challenge for the planner starts after the plan is constructed and explained to the client. The implementation gets hampered if the following common queries are not addressed by the planner.

1. Why Term insurance? I won’t get back anything if I survive.
Here the planner needs to explain the benefits of the term plan with calculations and comparison over an investment related insurance product. Just recommendations won’t help if it’s not backed by analysis.

2. There is high risk in equities?
Depending on the allocation of equities suggested by the planner keeping his needs in mind, the planner needs to show the benefits of investing in equity for long term goals over traditional fixed income investments. Past performance data also needs to be provided to bolster the planner’s suggestions along with highlighting its inflation beating ability.

3. Equities can provide me high returns.
On the one side there are clients who feel that equities are risky while on the contrary a few of them believe that equities can provide extremely high returns with a short span of time. These beliefs are based on hearsay and not backed by any solid proof. The planner needs to hand hold such clients and tell them about the short-term volatile nature of equities and the enormous risks involved in them if opted for short term. Data could be provided to substantiate the claim by the planner. Setting realistic expectations is key to ensuring that clients don’t lose sleep when equities don’t perform in the short term.

4. All mutual fund schemes carry risk?
Most people don’t know that mutual funds also offer debt schemes – schemes which invest in safe securities like treasury bills, certificate of deposit, commercial papers, government bonds, etc. When debt funds are suggested by the planner, a great deal of information needs to be provided on how these funds perform and its taxation structure. For a novice it will take quite some time to understand the intricacies of debt funds but continuous communication and interaction by the planner on these funds can improve the clients understanding.

Though the initial process of preparing the plan is quite challenging for the planner, the implementation stage is where bigger challenges crop up. Many planners do follow the process of educating the client continuously to ensure clarity at each stage by either meeting them regularly for review’s or sending them information via email. The client’s cooperation and allocation of time for this regular exercise is also equally important. A continuous interaction with client can ensure that both the planner and client are on the same wavelength and result in a fruitful long lasting relationship.

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