Indians are becoming more receptive to financial planning, says Kim M Sharan, President, Financial Planning and Wealth Strategies, Ameriprise Financial Inc. While on a visit to India, she and Kapil Narang, COO, Ameriprise India Advisory Services tell
Ameriprise Financial Inc President (Financial Planning and Wealth Strategies) Kim M Sharan
MONEY TODAY that there is a growing awareness about long-term financial planning, including for retirement
.Q. HAVE YOU SEEN CHANGES IN TERMS OF PEOPLE'S ATTITUDE TOWARDS FINANCIAL PLANNING BETWEEN YOUR PREVIOUS SURVEY IN JANUARY 2012 AND THE LATEST ONE?Kim M Sharan:
When we launched this study a year-and-a-half ago, financial planning
was new to the Indian market. We are trying to project what financial planning is and how we can engage more people in it. So, what we are seeing in clients we have served is that they are stepping back and trying to understand their goals and how they stick in the overall plan.
Ameriprise India Advisory Services COO Kapil Narang
We compared different groups' inclination towards financial planning and found that 50-60% people were inclined towards it, which is pretty big. And what we can see is that when you are making fairly good money
, say around Rs 40 lakh annually, then your inclination towards financial planning is the highest. It's most needed.
As you see, within the mutual fund industry, there are hundreds of schemes. There is a plethora of life and general insurance plans. And each product has its own characteristics. You need somebody to evaluate these products, understand you as a customer and an individual and then determine what is appropriate for you based on your time horizon and risk profile.Q. DO YOU THINK INDIA IS A RISK-AVERSE MARKET?
I don't think we have any clear indication of whether India is risk-averse or not. We have looked into how people are investing across cities and products. We see investments across segments. If you see our report, you will see that while the patterns slightly differ across cities, almost everybody is investing in products across asset classes.Q. WHAT INSTRUMENTS ARE YOU SUGGESTING TO CLIENTS AT THIS POINT?Kim M Sharan:
It depends upon consumers' personal situation. There is clearly volatility in the market and what we try to do is focus on consumers and their longterm goals. One of the basic principle is that one must have a well-diversified portfolio. We are not going to say which products are better than the others. It is about what suits you within your context.Q. WHAT ARE THE KEY FINDINGS IN YOUR LATEST REPORT?Kim M Sharan:
When we asked consumers what their main goals are
, we found a significant increase in the number of people who have retirement as their key goal. But again that's not to say that the other goals are not important. There has been a significant increase from 10% to 24% in the number of people focused on retirement planning, which is significant and welcome. Having long-term financial goals is always better.
The second thing is gender differences. Our survey shows that women have a higher level of confidence about financial planning prior to getting married. Conversely, men have a lower level of confidence when they are single and feel more confident after getting married.
What is most interesting is that the key influencer of financial decisions changes dramatically after women get married. When single, women have a variety of supports, father, friends, family members, but after marriage their primary and pretty much their sole support is the spouse. This is a very significant change which we are going to watch and track.
Then we looked at the financial intelligence index across cities.Q. CAN YOU WALK US THROUGH THE FINDINGS OF THIS INDEX?Kapil Narang:
Basically there were five elements that we looked at:
a) Do you do goal-based planning?
b) Is your portfolio diversified?
c) Do you take professional advice on financial planning?
d) Do you think long-term while investing?
e) Do you start investing early?
What you will see is that Mumbai scores 5.8, followed by New Delhi, Hyderabad, Pune, Bengaluru and Chennai. And if I look at what is it that each city is lagging in, what we can see is that people in Delhi are not starting investing early. For Mumbai, it is about not doing longterm planning, while Hyderabad is not diversifying as much as it should. In Pune, people are not doing goalbased planning, while Bangalore and Chennai fall lower on a lot of the parameters than the rest of the cities.Q. COMING BACK TO YOUR FINDINGS ON GENDER, DO YOU THINK THESE ARE SPECIFIC TO INDIA?Kim M Sharan:
We have done some research in the US and we find that women there are fairly confident; 68% say they feel confident about their finances. In the US, we did not have the comparison we did here. We did not split women into single and married, but overall women tended to feel very confident about financials, similar to what we saw here.Q. DOES THE APPROACH TOWARDS FINANCIAL PLANNING CHANGE AFTER MARRIAGE IN THE US TOO?Kim M Sharan:
In the US, we do not do the survey that way. It is something we may consider doing, just because it has been highlighted here.Q. YOU HAVE FOCUSED ON RETIREMENT AS A LIFE-STAGE GOAL. WHAT ABOUT OTHER SHORT-TERM GOALS? WHERE DO THEY FIT IN?Kim M. Sharan:
If you see our findings on key goals of consumers, nearly 48% say that the family is still at the core. It could be short-term or it could be thinking in terms of family essentials. Are my kids going to school? Am I saving enough for children's education? Then there are other aspirations like buying a second home or a family vacation. So, these are still at the core, with consumers coming to us and wanting to plan around these things.
But what we are seeing is an emerging goal that is gaining importance and that is retirement. This is very interesting and a huge opportunity. In the United States, we have this very large population we call the baby-boomers, who are in the 50-65 age group and are coming through pre-reitree and retiree stages. If they had focused on retirement years ago, they would have been much better off, because in many of our surveys we have seen that they are getting derailed by other issues.
This has been taking a toll on this population. Focusing on retirement early in life gives you a long time to save. Saving early, we know, is good, as compounding works in your favour.Q. AFTER THE GLOBAL RECESSION, ARE THEY STILL THINKING MORE OF SAVING FOR RETIREMENT IN THE US AND EUROPE?Kim M. Sharan:
I think people are becoming more focused on it. I think people wish they had started earlier. I think the younger generation is more risk-averse because it has seen parents go through a very difficult time. So we are hoping that their saving behaviour will begin to change.
Unlike India, which has about 30% saving rate, the figure for the US is only 4-5%. We are not there yet. Hence, we think that through a lot of education in the workplace from a financial wellness perspective we can certainly try to focus consumers on that because we know that the long-term benefits to families as well as the country overall are going to be based on the saving behaviour.Q. WHAT IS THE USP OF AMERIPRISE AS A FINANCIAL PLANNER?Kim M. Sharan:
Our focus is on the entire family and making the family feel financially confident and help them feel as if they are in control and entirely accountable and that is the core of what we do. We are here to bring in the financial planning to the forefront and really starting with the plan by identifying what are the goals, what are the aspirations, what are the dreams that people have and then, and only then, think about how should I allocate my assets, and then understand what are the products and services that would match to that. That is a process that we believe and we see in the States and it does invoke more confidence.
We know people in the United States have a much higher level of confidence when they have a plan. And when they have really found out the overall financial goals, they have an existing plan and diversification to do that by working with a planner or working with an advisor. Hence the plan as well as the advisor are the two critical factors in helping clients feel more comfortable.