Suresh Sadagopan Ladder7 Financial Advisories Nithin was feeling depressed. The great outdoors were not helping. Mahabaleshwar was beautiful, like a decked up bride, ready for the big occasion. It was pristine green everywhere. A cool breeze caressed and tried its best to soothe frayed nerves. It was successful elsewhere, but failed to apply balm to Nithin. Disappointed, it moved on to bestow its goodness to others who know to appreciate a good thing, when they feel one! Also read: Find out: Differences between financial planners and agents Nithin had his reasons to feel down. He was feeling weighed down by the weight of responsibility on his young shoulders. Having got married just a year back and a baby on the way, he ofcourse had a long way to go in life. His wife Priya thought so. But Nithin was adamantly downcast. Nithin was earning close to Rs 45,000 per month. But he was spending virtually everything. His family was living on rent and that was swallowing about Rs 14,000 a month. His monthly & annual expenses, insurance payouts, amount he sent to support his parents and so on left no surpluses. He was just putting aside Rs 2,000 a month in a recurring deposit, which he had started six months ago. His bank account almost always holds four digit amounts, except when salary hits the account. Nithin wanted to go for his own home. He did not know what to do, how to go about planning his future. He wanted to do so much. His friend Amol suggested that he should take professional advice. Nithin was not averse to that. He did go to a financial planner whom Amol had recommended. Nithin was also convinced that the planner was qualified to advice him. He did have the right credentials, knowledge, experience and expertise. But, there was a catch his fee. His fee was far too high for Nithins comfort. This happened a couple of months back. Amol had asked him about this and Nithin had told him that the planners fee was too steep. Amol agreed that the planner in question was indeed charging a high fee, but the blue-print he created was good value. Nithin was not so sure. Amol told him that he felt the same way when he contacted the planner for the first time. But there were some points that the planner had mentioned, that stayed with Amol and prompted him to engage the planners services. Amol recounted it for Nithin. 1. A planner is needed by almost everyone. It is a fallacy to believe that planners are only for the rich. Else, one should be in a position to do it oneself atleast. 2. A planner is required by the not so well off, even more than the rich. That is because, the moderately endowed have far lower margin for errors, than the rich. If that were so, professional advice becomes much more important not less. 3. There is apprehension that the fee charged is as high as 2 percent of the assets, for instance, and reduces the corpus to that extent. While that is true, the 2 percent paid ensures that 98 percent of the corpus does get managed properly. One however needs to see if the services rendered are commensurate with the charges. 4. A professional financial planner will ensure that obvious mistakes committed by most investors are avoided. Wrong insurance policies, high cost investment products, unsuited products in terms of risk, duration, liquidity etc. are all too common with investors. The amount of money investors tend to lose on these is far more than the fee. Hence, the right advice pays for itself. 5. Tax efficient investments are at the heart of building a corpus for future goals. A good planner would be fully aware of all avenues to ensure higher post tax income. An example would be to invest in good quality MF debt schemes as opposed to Bank fixed deposits (FDs). After a year, the income on the former is treated as capital gains and is subject to 10 percent tax without indexation or 20 percent tax with indexation. Effective tax may hence be 5-7 percent, depending on the prevailing inflation and the Inflation Index published by the income tax authorities. 6. The most important value addition by a financial advisor would be the strategic choices that they present and help you take, after due consideration of the benefits of each. An example would be whether to sell a property now and utilize the proceeds to build a retirement home in ones home town, retain the property and liquidate it much later or sell it now and use it for other goals and buy the retirement home later on with the corpus accumulated over time. The planner would help in clarifying what are the various advantages and negatives in each. 7. Getting the correct mix of investments and managing the available resources in the most efficient way, is again something a good financial planner would be able to do. Aloks summarization was impressive. Nithin understood that a good planner can add tremendous value. The important thing is to evaluate and find a good planner. You do not look up the yellow pages and go to a doctor. With planners too, you would need to choose wisely. Someone who has experienced the good work, and is being referred, is your best bet. Even then, you should ask the planner all the hard questions how they can justify their fees against the value provided, their reputation, their specialization, their experience & expertise in providing the services that you need etc. Only if they are able to satisfy you should you engage the planner. A good planner is money well spent and a bad choice would mean money down the drain. Nithin will now have to think and take his call. He knows that his future depends on it. Suresh Sadagopan is the founder of Ladder7 Financial Advisories
Posted on: Sat, 20 Jul 2013 16:12:44 +0000