A comprehensive financial plan, made by a qualified planner, can cost between Rs 10,000 and Rs 30,000. Is it worth it?
The short answer: yes. Spending this amount can save you the embarrassment of not having enough funds to pay for your daughter’s wedding, or to finance your home loan repayments. Because that’s what financial planning is about. It helps a family identify its long-term goals and timelines, quantifies those goals in monetary terms and then offers robust analysis on how best to achieve those goals given the family’s unique situation. When you get a financial plan, what you pay for is peace of mind. And, of course, you will be well prepared financially.
There is a school of thought that says financial planning has not caught on in India because it’s too expensive and the benefits do not justify such high costs. That’s like saying “Why pay for an annual ECG when I do not have a heart problem?” As we all know, a test is to pre-empt things that could go wrong or to catch them early. A “financial health” check-up is useful and necessary to correct problems in one’s finances.
We believe that the cost is only a minor reason for financial planning not taking off in India. The crucial reason is a lack of understanding of what planning can do. There are four factors at play here.
First, most people think of it as purely investing in the stock market or buying a financial product. However, financial planning is about getting a comprehensive 360-degree view on one’s entire financial situation and its impact on the ability to meet future goals. So you cannot look at just one product or investment in abstract and ignore its impact on other aspect of your finances.
Second, the environment in India has been corrupted because, in the past, families have been given poor advice or mis-sold financial products. The concept of planning has been abused, and as a result the Indian consumer is somewhat disillusioned about what to expect.
Third, there is a behavioural aspect. We commonly run into families that are very comfortable postponing critical decisions because the immediacy of the action isn’t fully appreciated. But as the experience from other countries has shown, this inertia and complacency is ultimately detrimental to the investor because one loses the ability to grow one’s money through compounding of capital over the long term.
Finally, there is the overconfidence in one’s own abilities to take care of one’s finances. Of course you can give it a shot, but just as you go to a car mechanic to get your vehicle’s engine tuned, or to a lawyer for a legal issue, shouldn’t you be going to an expert when dealing with your life’s goals?
As planners, it is up to us to help clients understand the value for money they get through planning by demonstrating how they can save money, as well as how much more expensive it will be if they were to miss achieving financial goals.
The past one year has seen a lot of wealth destruction in the markets. Families need honest financial planning experts—and not quacks— to help them build a solid financial foundation. Isn’t this an outcome well worth paying for?
Dhruv Agarwala and Kartik Varma are Co-Founders, iTrust Financial Advisors.
