“The Financial Planning Profession”

“As opposed to other financial experts, a financial planner delivers holistic financial advice that is grounded in the client’s personal requirements”.

Almost everybody, at sometime or the other in life, seeks profession advice, legal advice and, of course, financial advice. We are increasingly getting used to seeking out good advice and paying for it. We are realizing that just like in computers; where the software is at least as important as the hardware; that advice on what product to buy or not buy is at least as important as the product itself.

So if doctors are expert on our health and lawyers are legal experts, who are the personal financial experts? The accountant, tax advisor, mutual fund agent, insurance agent, broker of the portfolio manager?

In fact, they are all expert in their own Fields. And the correct analogy would be that of the nephrologist, gastroenterologist, gynecologist, neurologist and cardiologist. Who is the medical expect among them?

Well, you are right It depends on the problem. But then, when you get nausea, who would you go to? Stumped you, right? Your best bet to might be your General Physician or GPs, as they are known. He or she finds out envying about you including your lifestyle, family medical history, your current personal circumstances and recent important events. And then, if it isn’t a simple case of temporary toxicity in your body, your GP refers you to a specialist. If the specialist suggests some dramatic measures, you will want to go back to your GP and discuss them further.

In seeking advice from your GP, you sought someone who could study your problem, set specifically within your life and circumstances, and hand- hold you through a practical solution. And what matters to you is not just whether you go through surgery or not, but also whether It can wait till your Son's exams are over or whether there is risk in supplementing it with an alternative therapy etc. There are numerous questions that need to be answered — important, unimportant and sometimes we just forget to ask the fight questions.

John Ruskin once said, "Not only is there but one way of doing things rightly, there is but one way of seeing them, and that is seeing the whole of them.” That is the key your GP holds and that is also the fundamental of good financial advice. Financial Planning is the method in which your advisor tackles the entirely of your financial situation.

What matters to the financial Planner is you and your goals. He looks at the whole financial picture, interwoven, as it is, with your personal life. It is very important for the planner to know what is important to you because like all practical solutions, your financial decisions are also likely to involve tradeoffs to your best interest.

My experience is that some clients are surprised to even know that there were tradeoffs to be made. And yet almost all of them are happy that there is someone willing to walk with them through what might he some of the most difficult financial decisions in life.

The Six Step process :
What produces such insightful results, surprisingly, is not rocket science, but n simple and commonsensical six-step process, which is followed by Financial Planners the world over. The steps are logical and time tested. And while each planner may have his or her own unique way of applying the steps, these steps themselves form part of the international practice standards.

  • Establishing and defining the relationship with the client
  • Gathering Client Data
  • Analyzing and Evaluating Client’s Financial Status
  • Developing and Presenting the financial planning recommendations
  • Implementing the financial planning recommendations
  • Monitoring

You will find that all practicing CFPs would follow the same six steps world over the arrive at insightful conclusions and competent advice that follows as a consequence. Each step is very important in itself that follows as a consequence. Each step is very important in itself and it is this process that really differentiates a Financial planner from another financial advisor. You will notice that it is only in the penultimate step that the planner will talk about financial products. In contrast, this – the fifth step, would be a high priority step, coming in much earlier, to a typical sales person because closing to sale would the sale would be of utmost importance.

When I say Financial Planner, I am referring to one of the two-certified Financial Planner (CFP TM ) or aspiring CFPs. CFP TM is a trademarked designation owned by the international CFP Board of Standards, Denver, USA. Individual associations in countries that qualify as affiliates are then delegated the authority, by the international board, to grant the marks to individuals who meet the requirements of Ethics, Education, Examination and experience.

Is it affordable?
One widespread myth about buying advice from a financial planner is that it is likely to be expensive. Firstly, let me get this straight. Not all planners charge fees. A substantial number of planners earn their income by way of commissions, which they receive when their recommendations are implemented. Then how are they any different form the sales agent? At least in two ways, CFPs, commissions are only a compensation structure. He is required by the practice standards to adhere to the six- step process in arriving at his conclusions. Two – A CFP is required to disclose what he is going to earn and from whom, again as a requirement of the practice standard as well as due to the application of the code of ethics.

There are planners who work on a fee-only basis. But it is important to recognize that this compensation structure is a personal choice of the advisor and the advised. The CFP practice standards and code of ethics only require full disclosure, transparency and integrity on part of the planner with respect to his compensation structure.

The Myth of High Returns :
Finally, a lot of people ask me, does that boil down to a higher return on our investments? Frankly there is no ‘lived happily ever after’ in real life. If we believe we have control on outcomes, financial or otherwise, we are not only living in a fool’s paradise, but are also making ourselves vulnerable to those who might want to sell us those dreams.

It is up to us to create a process that reduces undesirable results. It is up to us to put good and complete data into such a process as its input. The result of doing both these will be a financial outcome that is desirable and more importantly predictable.

There are two common mistakes we tend to overlook: one – if everybody wants to beat the market, someone has to lose. And unless we are blessed with intelligence superior than one half of the market, we are very likely to be the loosers. Often the quest for supra-market returns lead to sub-market returns due to the higher risk strategies adopted in chasing such returns.

Two-risk is the unpredictability of an outcome. By chasing higher than market returns, you are logically increasing the unpredictability of the outcome. The consequences of this is the uncertainty introduced in the possibility of you achieving your dreams.

Markets exist because of the unknown parameters of demand, supply and price. If anybody could predict the market, the market wouldn’t exist. What’s importance is to understand financial markets and the risk-return tradeoffs to reduce the uncertainty in and maximizing the possibility of, achieving your life goals. The financial planning profession has evolved to this date to meet this practical need of the consumer.

“It is what you know that is your greatest wealth. It is what you do
not know that is your greatest risk” – Robert Kiyosaki, RICH DAD

Aug – Oct 2004

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