Business Today

Do you need a planner?

Like most people, you may think you don’t but you could be wrong. BT kicks off a three-part series on sound financial planning. In the first, we begin by emphasising the need for a professional planner.

Kamya Jaiswal | Print Edition: November 29, 2009

Most people are unaware of the services provided by financial planners. Here’s a checklist:
Calculate the inflation-adjusted cost of financial goals.
Offer advice on setting certain goals.
Prioritise the individual’s financial goals.
Change time horizons if required and possible.
Check whether income to expense ratio is appropriate.
Classify expenses and set limits for each type.
Ensure that surplus money gets invested.
Calculate and maintain the required level of liquidity.
Calculate the individual’s equity to debt ratio.
Decide the degree of diversification required in the investment portfolio.
Distribute investments within each asset class.
Revisit allocation periodically.
Choose specific equity, debt and combination instruments.
Align the instrument with the overall asset allocation.
Align instrument to investor’s risk profile.
Factor in the tax implications of each product.
Calculate the life insurance cover required.
Choose the most suitable type of insurance plan.
Identify assets that should also be insured.
Help choose the best policies to insure these assets.
Invest in the selected instruments.
Help in filling up the required forms and submit documents.
Maintain records of all transactions and investments.
Ensure that no fraud occurs during investment.

So you think you know it all—taxes, risk-reward trade-offs, technical analysis of stocks, inflation adjustments and so on. If all this is clear, why would you want to shell out a few thousand rupees on expert advice? Thirty-three-year-old Nagesh Kolluru, a senior manager in a pharmaceutical company, thought so too.

He started investing about five years ago and his portfolio was generating “very satisfactory” 25-30 per cent annual returns. Then the market crash happened and he woke up to the possibility of mistakes. “I want some validation of my decisions even as my control over the finances remains intact,” Kolluru explains. Moreover, as his responsibilities increase, he has realised that soon he will not have enough time to manage his portfolio. “In another 8-10 years, I will not be able to do without an adviser,” says this informed investor.

Kolluru is not the norm among investors. Most are unaware of the basic rules of financial planning. So, if such informed investors need help, it is clear that so do the majority of people. On an average, everyone will be better off seeking the information, expertise, experience and discipline provided by a financial adviser.

Making quality financial decisions requires a commitment to learn and research. Of course, the Internet’s easy access to information has made it possible for almost everyone to think they can outperform Warren Buffett, but the fact is that personal finance is a difficult area to navigate alone. This is why Delhi-based Rohin Kapoor may eventually realise that though he has the knack of picking high-yielding stocks, he needs a different strategy to counter market crises like the current one.

Think of it this way. You know that a desktop computer consists of a CPU, a monitor, a keyboard and a mouse. And that the CPU comes with a motherboard and assorted other doodads, the names of which you can’t remember offhand. You know all these elements are available in the open market—of good quality and at good prices. Does this mean that you can assemble a working desktop computer?

Doesn’t it make more sense, and isn’t it cheaper than going to a shop and picking up a computer that’s been put together by experts? No, it doesn’t because try as you may, you won’t be able to get it right.

It’s the same with your financial plan. Of course, you can buy stocks, mutual funds and life insurance policies without help. You can certainly take loans without someone holding your hand. You can even manage taxes on your own, buy a house or invest in real estate. But can you do all this without borrowing from one asset to fund another, and without running madly down the streets?

No. The time required to manage the intricacies of a financial plan will take away from the many joys of your life. Isn’t it better to hand over the reins to an expert and just keep checking to see if your money is working hard?

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