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. 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 financial planning. Over the course of an engagement with a client, I impart fundamental principles of personal finance and financial planning to them. I do this with a view to making 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 view financial planning as a serious, continuous exercise and not as a one time quick fix.
2. You want an unbiased, objective opinion on your current financial situation.
3. You wish to learn money management with a view to becoming a DIY (Do It Yourself) investor in the future.
4. You need help defining and prioritising your financial goals.
5. You would like help to design a road map that enables you to achieve those goals.
6. You need help picking investment products that are optimally aligned to your goals.
7. 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.
2. You want me to offer advice on or manage your domestic and/or global direct equity portfolio.
3. You are looking to trade in stocks or derivatives.
4. You are looking for advice on hedge funds.
5. You are looking for advice on PMS, AIF, cryptocurrencies and other structured or unregulated products.
6. You are looking for help with regard to startup investing, angel investing and private equity
7. 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.
8. You want me to offer advice on assets funded through black money.
9. 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.
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. 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. 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.
These three sessions are usually conducted over a period of 2-3 weeks (Roughly one session a week).
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)