Can a Financial Plan really sort out Your Life?

Recently, a client of mine completed a year with me. Since I clearly remembered his first interaction with me (will share details later), I thought it would be useful for me to understand his view about financial planning and its benefits after one year of experience.

Before I share what he had to say, I must give you a bit of background about our first interaction.

When he approached me about a year back, he clearly told that he was not very enthusiastic about taking any financial advice whatsoever! 🙂

This surprised me as he was the one who approached me in the first place.

On enquiring further, he told that even though he was interested in having more control over his personal finances, taking advice on money matters from someone outside his family was something that he wasn’t very comfortable with. And therefore, a full-fledged engagement for financial planning was a long shot for him then.

Later on, I came to know that his reluctance was mostly due to earlier bad experiences with bank RMs and agents.

All that had left him frustrated, confused and as expected, with a portfolio of useless financial products.

So I understood where the real problem was – and it was about TRUST.

Some online research led him to the concept of investment planning and more importantly, the need for financial planning.

He then shortlisted and interacted with few financial planners and investment advisors and came to know that some have fee-only model while others had commission linked model. Logically, the fee-only model made more sense to him as the advisor does not have any vested interests or client-unfriendly incentives.

It’s like both the client and the advisor are sitting on the same side of the table and not on opposite sides!

To make it more relatable, imagine having an option to go to two different doctors.

One charges you fee upfront and writes a prescription. You have the freedom to accept or reject his advice. Other doctor does not charge you anything upfront but most often than not, will be compensated by medicine manufacturers to prescribe certain medicines via his prescription.

🙂

I hope you understand that there can be a conflict of interest in the second case. Not always but the risk is always there.

Coming back to my client’s story…

I clearly remember that when I had the initial discussion with him, he was really impressed with the idea of Goal-based Investing and how a Goal-based Financial Plan could help him.

And I would like to highlight this here again.

The idea of goal-based investing is to take your real financial goals and build a plan around it. It’s not just about beating markets, indices or others in investing. It’s about making money available as and when needed for important life goals by proper investing and regular review and monitoring.

In our initial conversation, I was able to address most of his concerns about why this approach could work and what were the possibilities.

I even helped him rationalize and finalize his financial goals. (Even you can do it using this free financial goal setting excel sheet download yourself).

He told me that till then, his savings and investments were general in nature and mostly directionless. Some savings here and some there.

Some products purchased just to save taxes without understanding what they were or whether they actually delivered what they promised or not.

The process of financial planning is a structured process where there are several but simple stages. So after Financial Data collection and Risk Profiling, I delivered an elaborate financial plan to him.

After going through the financial plan, he got the reality check about where he stood then. It came as a bit of shock to him to see how he had been managing his money till then when compared to what had been advised in the plan.

This ‘reality check’ was stressful at first but more importantly, it prepared him for the future course correction.

He saw the problem, he related to his goals and more importantly, after going through the plan he knew what was to be done to take him from where he was to where he wanted to be.

One of the biggest realizations for him was that tax-saving is just one aspect of a complete financial investment plan.

The financial plan told him how to go about investing and saving for his short, medium and long-term goals* which included children’s education & marriage, annual holidays, foreign holidays every few years, house purchase, retirement planning, contingency fund and both life insurance planning and health insurance.

*You can set your own financial goals very easily by following this rather logical and simple approach.

A realistic view of his personal finances and life goals – this is what the financial plan presented him with.

To his credit, he diligently put the advice in action and took necessary steps over the next few months.

He now… feels he is in a much better place financially after he began consulting – and that’s because he now has a more structured and disciplined approach to managing money – something that was missing in his early years.

“Before the financial plan was implemented, my financial life was really all over the place. In trying to be smart with money, I ended up losing a lot of time in terms of wealth creation… which I realize now. But better late than never.” 

“I was apprehensive earlier but financial planning has helped me get rid of my insecurities and more importantly, I feel more in control and I know that if I need money, I know I will have it. And that is what allows me to sleep peacefully at night.” 

To confess here, I as an investment advisor was happy to hear these words from my client. It feels good to make some impact no matter how small it might be. And let me tell you one thing. And I am not saying this because I am an investment advisor and I wish to have more clients (obviously). 🙂 🙂

A real advisor goes much ahead and deeper than plain numbers.

A good advisor can help the client understand what is important and what is not. Markets have and will remain volatile forever. So what events should be ignored and what actually matters is what a good advisor can tell you. He or she can bring the discipline into people’s financial lives – and that is extremely important.

Finding the right investment advisor or financial planner is the next key question.

To be fair, these days it is easy to find online excel financial planning calculators and robo-advisories which can create a financial plan on the fly.

But real advisory goes much beyond just the numbers in a spreadsheet or an algorithm. Relying on numbers is very important. But there are some things that should not and cannot be quantified. Subjective understanding of the context of the numbers, current scenarios and client’s real risk appetites is something that cannot be captured in excel calculators or the online robo-advisory’s data-driven model. Please don’t assume that I am saying that these are bad. I am just saying that these are good to begin with. But most often than not, they may not be suitable for everyone eventually.

Coming back to the point of hiring an Investment Advisor.

The best investment advisor or financial planner should be knowledgeable, unbiased and have the wisdom necessary to chalk out a solid, well-thought-out and goals-driven financial plan.

Ofcourse, its easier said than done.

There are many who fit that description. It is best to shortlist a few and then reach out to each one of them and then – understand their philosophy, analyse what kinds of questions they ask and whether they are really unbiased or not. You will get your answer after talking to a few of them.

And please remember that good investment advice is generally not free and it shouldn’t be.

If you are confused whether it’s worth paying for financial advice when you can easily find things for free on the internet, remember that knowledge and advice are two very different things. You don’t know what advice (that is doled out freely online) is suitable for you or unsuitable. You will only know when the damage is done or when it’s a little too late.

As I say, it’s your money and hence, your responsibility to protect and grow it.

And here is something that some smart investors have told me – a few important pieces of financial advice can offset many years of the fee charged by advisors.

That is 100% true.

Remember that a good financial plan can put back your financial life on track and help you achieve your financial goals. And a good financial advisor can be the difference between meeting and missing your financial goals.

Is that a risk worth taking?

I am sure you are wise enough to know the answer.