Financial Planning is still perceived to be synonymous with Investment Advisory by a majority of people. We attempt to over come this myth by presenting a few financial planning questions to ponder over:
- Will I have sufficient money upon my retirement to lead a certain lifestyle?
- How much money will be need to fulfill my children’s education? Will I be able to afford it then?
- Can I really afford the house that I actually want? When should I go for it?
- Do I know every thing about the Insurance policy that I have bought some years back?
- Do I have sufficient Health Insurance in case of any hospitalization?
- Am I confident that my family can continue the same life style if my income earning capacity were to be lost partially or totally?
- Will my family have sufficient liquidity to meet all the basic goals in life, if I were not to return home on any day?
- Do I really know the difference between a nominee and a beneficiary?
- Have I written down the method of distribution of my estate (complete wealth) in the event of an eventuality?
- My children are not interested in my business empire. Do I have a succession plan in place without disturbing the business and at the same time taking care of the monetary interest of my legal heirs?
- Thought provoking is’nt it?
Financial Planning has the answer to all these above questions. This definitely proves the point that financial planning is far ahead of mere investment advisory.
FPSB, India describes financial planning on their website www.fpsbindia.org as under:
Financial Planning is the process of meeting your life goals through the proper management of your finances. Life goals can include buying a house, saving for your child’s higher education or planning for retirement. The Financial Planning Process consists of six steps that help you take a ‘big picture’ look at where you are currently. Using these six steps, you can work out where you are now, what you may need in the future and what you must do to reach your goals. The process involves gathering relevant financial information, setting life goals, examining your current financial status and coming up with a strategy or plan for how you can meet your goals given your current situation and future plans.
FPSB India prescribes six steps to be followed to ensure delivery of a proper financial plan:
1. Establishing and defining the client-Planner relationship
The Financial Planner should clearly explain or document the services to be provided to you and define both his and your responsibilities. The Planner should explain fully how he will be paid and by whom. The Planner should also disclose any restrictions on his ability to give unbiased advice and disclose any conflicts of interests. You and the Planner should agree on how long the professional relationship should last and how decisions will be made.
2. Gathering client data, including goals.
The Financial Planner should ask for information about your financial situation. You and the Planner should mutually define your personal and financial goals, understand your time frame for results and discuss, if relevant, how you feel about risk. The Financial Planner should gather all the necessary documents before giving you the advice you need.
3. Analyzing and evaluating your financial status.
The Financial Planner should analyze your information to assess your current situation and determine what you must do to meet your goals. Depending on what services you may have asked for, this could include analyzing your assets, liabilities and cash flow, current insurance coverage, investments or tax strategies.
4. Developing and presenting Financial Planning recommendations and/or alternatives.
The Financial Planner should offer Financial Planning recommendations that address your goals, based on the information provided by you. The Planner should go over the recommendations with you to help you understand them so that you make informed decisions. The Planner should also listen to your concerns and revise the recommendations as appropriate.
5. Implementing the Financial Planning recommendations.
You and the Planner should agree on how the recommendations will be carried out. The Planner may carry out the recommendations or serve as your ‘coach’, coordinating the whole process with you and other professionals such as solicitors or stockbrokers.
6. Monitoring the Financial Planning recommendations.
You and the Planner should agree on who will monitor your progress towards your goals. If the Planner is in charge of the process, she should report to you personally to review your situation and adjust the recommendations, if needed, as your life changes