What is Financial Planning?
Definition and Scope
Financial Planning is the continuous protection and optimization of cash, cash equivalents, assets and liabilities of a person or firm, through the various stages of lifecycle including early stages, accumulation, consolidation and transmission of such wealth taking into account a person or firms situation, objectives and needs.
Financial Planning is a dynamic discipline requiring a specialist understanding of the person ( family) or firm objectives, risk and return profile, earnings, and asset/liability situation to tailor-make and design a plan that serves the overall needs of a person or firm to optimize returns and accretion for long term wealth creation.
Today, persons and firms have diverse financial requirements which require specialized knowledge given the vast array of financial solutions available to manage these financial requirements. Financial planning includes financial assessment, investment management, insurance, estate and tax planning, retirement planning, and all allied financial areas. Given the increased complexity of financial instruments available and dynamic macroeconomic changes, financial planners may be understood as specialized financial “Doctors. “
Why Financial Planning?
Steps in Financial Planning:
The following are the Generic steps in setting out a wealth plan for a client.
- Understanding Client Needs
- Assessment of Goals/Objectives and Risk Profile and ability/sophistication of client
- Setting out a Financial Plan including protection/growth products/costs
- Discussion, agreement and sign off with client
- Implementation and monitoring of Plan at regular intervals and revisions wherever required
- Financial Planners follow up with regular client support where required.
Implementation
Implementation will be based on the Asset Allocation plan agreed with the client. Asset Allocations is the apportionment of monies/assets across asset classes like Direct Equity, Equity Mutual Funds, debt Mutual Funds, Term Deposits, Liquid funds, alternative investment funds, real estate etc. to achieve the set planned outcomes at acceptable risks.
Accordingly, financial planners also employ Strategic Asset Allocation (a longer-term mix of portfolio assets fixed according to profile) and Tactical Asset Allocation (a shorter-term active allocation strategy to rebalance returns and risk where acceptable) given market conditions. The allocation is constantly monitored over time for effectiveness. The financial planner also provides support on methods of Opening, Bank Demat and Trading accounts in names of appropriate holders, nomination, minor accounts if required.
