There is a clear need for a plan, whether it is a monument, a home, a marriage, a family function or even a vacation.
Imagine starting to build the Gateway of India without a blueprint.
For sure, its builders must have had a clear idea of what they have been commissioned to do. Based on that vision, they would have had a master plan or a blueprint of what they want to bring to life. Then they would have given shape to the blueprint by breaking down the project into activities and actions to be taken and the sequence in which it needed to happen.
Need for planning
Many of us would have done this when we wanted to build a home, where we go to an architect, and give all the details about the land as well as the kind of house we want to construct on that land.
We would the details of who will live in the house, what facilities and amenities we are looking forward to, specific requirements that need to be considered, budget constraints, etc. After understanding all this, the architect would come up with a couple of designs which he would discuss with us, understand if they meet the requirements and make any changes based on the feedback.
There is a clear need for a plan, whether it is a monument, a home, marriage, a family function or even a vacation.
Money planning
This should be the same for one’s finances, though it seldom happens. Unlike any other project where there is proper planning or a blueprint before starting off, personal finances are treated like it is a distraction though we spend half our lifetime working, to earn that money.
It is an irony that the money earned lies around in the bank and gets pushed into some investments without really examining its fitment in the overall scheme of things. Personal finances are conflated with products and investments.
Information/ “advice” sidetracking people
One of the fallacies around personal finances is the accessibility of so-called advice all around. There is a lot of material on the net, media and self-help books. There are also TV channels, and podcasts devoted to personal finance which many follow. Apart from this, the product sellers also double up as advisors.
So, there is no dearth of information on products and services, when it comes to personal finances. But such information lulls one into a sense of false proficiency. General information hardly takes into account one’s personal situations/ needs and the fitment of the product in your circumstances. Hence, decisions taken do not turn out to be the right fit most times. One just ends up with a patchwork of products, instead of a proper financial edifice based on a coherent strategy.
Even Financial Advisors are confused
The confusion does not stop at the investor level. Even Financial Advisors tend to think in terms of products instead of looking at the overall picture. There are many Financial Advisors who are, at best, investment advisors in the limited sense of the term. They focus on managing the money (like managing an equity portfolio or an MF portfolio or focusing on building a portfolio to earn good returns), instead of working on the blueprint for the client and putting in place a portfolio that would help them achieve their goals and other long-term needs.
They instead start managing the portfolio and lapse into the fallacy of investing for returns. Returns are needed in a portfolio – but the portfolio should be tailored to meet the overall interests of the client in their life trajectory.
This completely muddies the waters when it comes to financial planning. Investors are looking for advisors who will maximise their returns.
Investors evaluate their advisors in terms of the portfolio returns as opposed to laying down a pathway that will help them achieve their milestones and goals, invest as per their risk profile, ensure security nets, enable liquidity and plan for contingencies, provide for upcoming goals and expenses and generally make the life trajectory itself smooth sailing for the client.
Instead of countering that, many Financial Advisors also toe the line and work on maximising returns. This is a no-win situation.
When the markets are doing well, they will expect returns far higher than what markets are delivering (because some friend of the investor has got 65 percent returns and by comparison, a 42 percent return of their portfolio is grating). When the markets are down, the advisor is asked why they were not able to predict the downturn and why their assets have not been moved to safer avenues.
Friend, guide and co-pilot
The advisor needs to stand by the client in their life journey and needs to guide them with their money, help them achieve their goals, calm their fears, help them build wealth over time.
Advisors have to make their clients understand that they don’t control the markets and they do not have any predictive powers.
Clients have to be made to understand that their important goals have to be achieved irrespective of market performance. For that, a robust plan that accounts for all knowns and some unknowns is the only solution. The advisor is the one who will do that for the client. For effect, the advisor can tell their client about Gateway of India!
Financial Advisors should stop playing Superman and instead play the role of a trusted confidante. That will be in keeping with the true character of an advisor.
