My Approach To Financial Planning And Portfolio Construction
To my common sense, financial planning is driven by simplicity. I view a financial plan as a blueprint that helps my clients create a financial toolkit for themselves. Each component of the toolkit must serve a clear purpose. Each of them must contribute to the financial well being of the client. I therefore focus on creating plans with products that are simple and purposeful.
When constructing portfolios for clients, I follow the Passive or Defensive Approach. It was originally propogated by Benjamin Graham. It is essentially a long term, buy and hold approach to investing and portfolio construction. It focuses on avoiding mistakes and making as few investment decisions as possible. It aims to minimise effort for the investor and diversify the portfolio at low costs. I mainly construct client portfolios using mutual funds, sometimes using ETFs (Exchange Traded Funds). I recommend index funds or ETFs for the equity allocation in portfolios. For the debt component, I recommend a combination of EPF/PPF/NPS (NPS only in select cases) and debt mutual funds.
I do not offer advice on derivatives (Futures and Options), direct equity (individual stocks), PMS (Portfolio Management Services) AIF (Alternative Investment Funds). I also do not offer advice on cryptocurrencies and other unregulated investment products.
I also focus on educating my clients on personal finance and money management. Over the course of an engagement with a client, I impart fundamental principles of personal finance and financial planning to them. I do this to make them capable of handling their own finances, over a span of 2-3 years. At that point, engaging me should become an option rather than a necessity for the client.
We Would Enjoy Working Together If...
1. You are looking for a simple, process centric, no nonsense and effective approach towards investing and financial planning.
2. You view financial planning as a serious, continuous exercise and not as a one time quick fix.
3. You want an unbiased, objective opinion on your current financial situation.
4. You wish to learn money management with a view to becoming a DIY (Do It Yourself) investor in the future.
5. You need help defining and prioritising your financial goals.
6. You would like help to design a road map that enables you to achieve those goals.
7. You need help picking investment products that are optimally aligned to your goals.
8. You are a DIY investor who wants professional help to evaluate and validate your investment decisions and money management practices.
We Would Not Be An Ideal Fit For Each Other If...
1. You wish to simply maximise your returns. Financial planning is aimed at delivering the right results for clients, not the highest returns.
2. You want me to offer advice on or manage your domestic and/or global direct equity portfolio. These services are better offered by stock brokers or portfolio managers. Financial planning is a much more evolved and holistic service.
3. You are looking to trade in stocks or derivatives. Both of these activities are too complex, costly and risky for most individuals to do them well.
4. You are looking for advice on hedge funds, PMS, AIF, cryptocurrencies and other structured or unregulated products. These products are extremely complex and go against the interests of most retail investors. Recommending them would therefore mean that I am compromising my fiduciary responsibility as a financial planner.
5. You are looking for help with regard to startup investing, angel investing and private equity. Corporate finance falls outside the scope of my services.
6. You want me to build a Shariah compliant portfolio for you. This is not meant to hurt anyone's religious sentiments. I recommend debt instruments and interest bearing securities to clients, to ensure balance in their portfolios. But debt instruments and interest bearing securities go against Shariah laws. So someone looking for a Shariah compliant portfolio may not find value in working with me.
7. You want me to offer advice on assets funded through black money. Black money is illegal and so therefore is advising on assets funded with it.
8. You insist on meeting me in person for introductory meetings, financial planning sessions and/or financial plan presentations. All meetings with clients would be conducted completely online via voice or video calls.
9. You want me to offer you a discount on the first year advisory fee of Rs 12,000 or the renewal fee of Rs 6,000. My fees are currently the lowest in the industry. Therefore there is no further scope for discounts.
10. You are looking for guidance on overseas tax laws. Overseas tax laws fall outside the scope of my services.
11. You are a prospective client who is looking for a sample financial plan to understand what the final financial plan you recieve would look like. A sample plan would at best be a skeletal version of the final plan delivered to a client at the end of an engagement. So it would give you very little perspective with regard to what you should expect as the final output. Therefore I do not provide a sample plan to prospective clients.
12. You wish to ask specific questions regarding your finances during the initial introductory call. The introductory call is meant for me to understand your case and needs for financial planning services. It is meant for you to understand my service offerings and style of working. Specific questions on your finances can be properly answered only when I have a detailed understanding of your financial position. This can happen only once we have begun working on the engagement. It would be irresponsible on my part to answer such questions before then. Therefore specific questions on your finances will not be answered.
A few examples of specific questions regarding your finances include (but are not limited to) :
Is this stock/mutual fund/investment product/insurance policy a good fit for me?
What tax benefits can I avail of given the facts of my case?
What percentage of my portfolio should I hold in equity/debt/any other asset class in light of my financial goals?
The points mentioned above are non negotiable. Exceptions will not be made on any of these points, even on request.
Onboarding Process Before Initiation Of An Advisory Engagement
Before initiating an engagement with a client, I am required to complete an onboarding process for the client. The process is divided into 4 phases.
Phase 1 - I email my Letter of Engagement to you, the prospective client. As per a recent regulatory requirement specified by SEBI on August 21st 2024, I am required to list the PAN numbers of all members of the client’s family on whose finances advice will be provided under the engagement in the letter of engagement. Therefore you would need to share the relevant PAN numbers before I can email you the letter of engagement.
The letter would contain the terms and conditions that would govern our advisory engagement. Should you choose to accept the terms of the engagement, you are required to sign the Letter of Engagement in the space that would be provided. The date of signature must also be clearly mentioned. The letter may be signed physically or digitally. Once signed, you are required to send the signed copy of the Letter of Engagement back to me via email.
Phase 2 : I would next require a soft copy of certain KYC details and documents as prescribed by SEBI for my records. With regard to this, I would require a copy of your :
1. PAN Card
2. Aadhaar Card
The documents must be sent via email.
Phase 3 : I would send you a risk profiling questionnaire that will allow me to guage and understand your risk profile as an individual and thereby determine an investment strategy and financial plan that is optimally suited to you. The questionnaire contains a set of multiple choice questions. There are no right or wrong answers to the questions in the questionnaire. You would be required to pick the alternative that is most suited to you.
You may directly highlight your answers within the questionnaire and send it back to me. Alternatively, you may also take a print out of the questionnaire, fill up the questionnaire with your answers and send a scanned copy of the filled up questionnaire back to me. Once I recieve the filled up questionnaire, I would have another conversation with you. The conversation would be regarding some of your responses to the questionnaire. This would allow me to guage how well you have understood the questions in the questionnaire. Your responses to the questionnaire and during the forthcoming conversation would help me formulate your financial plan.
Phase 4 : I would share my risk profile assessment report with you. It would contain my opinion with regard to your risk profile. Once I deliver the report to you, the onboarding process would be complete. You may then pay the first year advisory fee to begin the engagement.
What An Advisory Engagement With Me Looks Like
After the first year fee is paid, the engagement would begin. I first send you an Excel sheet to collect your financial data. Once you send back the duly filled data collection sheet, the main engagement begins. When we work together, a typical first year engagement is divided into 3 phases
Phase 1 - Here we do 2-3 sessions together of 45 to 60 minutes each.
Session 1 : Assessment Of Financial Situation and Concepts And Principles Of Money Management (Part 1) - We connect to understand your current financial situation. We also understand basic concepts of money management (Cashflow management, emergency funds, life and health insurance and asset allocation).
Session 2 : Portfolio Review and Concepts And Principles Of Money Management (Part 2) - We review your current investment portfolio. I give you my opinion on your portfolio. I point you to the products in your portfolio that are most relevant in light of your financial goals. I also let you know which products are irrelevant and can be let go of. We also discuss advanced concepts of money management (Defensive investing, Efficient Market Hypothesis, Arithmetic Of Indexing, Real Returns, Portfolio Construction)
Session 3 : Goal Planning Session - We define your financial goals. We understand how much you need to invest each month to achieve each of them. We also define the broad asset allocation for each goal.
The first session of the engagement would be conducted within a period of 15 days from the date of receipt of the advisory fee and subsequent submission of the data collection sheet. You will be given the option to schedule all your sessions upfront. In such a case sessions would be alloted as per your discretion, subject to my availability. In most cases where sessions are scheduled upfront, these 3 sessions would be completed within 2-3 weeks from the date of the first session.
If you opt against scheduling sessions upfront, sessions will be alloted at my discretion. In such a case there may be a gap of upto 15 days between two successive sessions, depending on my schedule at a given point of time. In case meetings are rescheduled, a revised date and time will be alloted as per my availability.
Phase 2 - I take a period of 3 weeks to prepare your financial plan. It would be based on the data shared by you and my major findings during Phase 1. The financial plan would be in the form of a PDF document. It would contain my recommendations with regard to various areas of your finances. The rationale, suitability and reasoning behind each recommendation would also be clearly stated. Any supporting complex calculations would be shared separately in the form of Excel sheets.
Phase 3 - I present the initial financial plan to you over another session of 60 to 90 minutes. I would invite your feedback on the initial plan. You would be welcome to suggest changes and/or improvements to the contents of the plan as you deem necessary. I will incorporate the changes you suggest at my discretion. After this, I would present the finalised financial plan to you for execution. This may take another few days.
Post Plan Presentation - After the plan is presented to you for execution ongoing support would be available to you for the remaining portion of the first 12 months of the engagement. It would be upto you to contact me for support and/or clarifications anytime you feel the need for it. I would contact you whenever there is a significant event that affects you and/or your financial plan. After the first 12 months, you are welcome to return for a renewal engagement.
Renewal Engagement - Mainly meant for reviewing the financial plan created in the first year. A renewal engagement lasts for 3 months. We connect for 3 sessions of 45 to 60 minutes each. We first assess how well you have executed the plan since the date on which the plan was presented to you. We then review your life circumstances to see if they dictate a change to your financial plan. If there are significant changes, your financial plan will be updated. Finally, I make recommendations as required for the forthcoming years.
The entire process would be completed over 3 to 4 weeks. Ongoing support would be available for the rest of the year. It would be upto you to contact me for support and/or clarifications anytime you feel the need for it. I would contact you whenever there is a significant event that affects you and/or your financial plan.
Pricing And Periodicity Of Services
I offer a fee only advisory model. The fee structure has been designed keeping the clients’ best interests in mind, in compliance with SEBI regulations. The fee structure has been given in detail as follows:
First Year Advisory Fee : The advisory fee would be Rs 12,000 for the year.
Time spent towards working with a client during the first year :
Initial engagement - 3 hours
Preparation of financial plan - 4 hours
Plan presentation - 2 hours
Ongoing support after delivery of the plan (based on observed trends) - 3 to 4 hours
Minimum number of hours of effort with a client during the first year - 12 hours
Effective hourly rate = Rs 12,000/12 = Rs 1,000 per hour
Renewal Engagement (Follow up engagement after the first 12 months) : Rs 6,000 payable upfront at the beginning of the engagement (The renewal engagement would last for 3 months)
Time spent towards working with a client during a renewal engagement :
Renewal engagement - 3 hours
Ongoing support after the engagement - 3 hours
Total number of hours of effort under a renewal engagement = 6 hours
Effective hourly rate under a renewal engagement = Rs 6,000/6 = Rs 1,000 per hour
Cash payment of fees would not be accepted. Fees may be paid via any recognised banking channel (NEFT/RTGS/IMPS/UPI)