BackPutting life into financial planning
Life planning takes financial planning one step ahead. It aids in prioritizing usage of time and money
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When Rajesh Navaneetham, a 48-year-old Bengaluru-based senior information technology executive, started to think of his retirement a few years ago, it seemed to be a simple affair. Having come from a modest background, Navaneetham had to work hard to earn his daily bread. His goal was simple: I should have enough money to live off during my retirement.
However, after a successful career, what was he going to do with all that money? Surely, he would have had some hidden or unfulfilled desire. It took a while for his financial planner, Mitraz Financial Services Pvt. Ltd, to get him to open up. It turned out that Navaneetham wanted to do his bit to eradicate poverty. He wanted to help children from economically weaker backgrounds get a decent education. “I want to bring at least 1,000 children out of poverty," he said.
This is when he and the financial planner started to work on his finances so that he could have enough in his retirement years to push for his cause as well as have something for his own. When he got down to it, Navaneetham realized he wasn’t just planning for his financial future; he needed to plan for his life ahead. And both of these are connected.
Mint Money takes a look at what is life planning and how different it is from financial planning.
Making your money work for you
Now, when we think of financial planning, we think of stereotypical goals such as our retirement, children’s education, their marriage and so on. The financial planner from Mitraz Financial Services asked Navaneetham when they embarked upon this exercise: what would you really like to do if you had all the money?
And here’s where life planning comes into the picture. “Financial planning is about numbers and whether inflows, outflows, assets, liabilities put together make a client solvent. The goals captured in financial planning are typically financial goals with the amount of savings required to meet these goals. Whereas life planning is about whether people are doing the right things and something that makes them happy," said Anup Bansal, co-founder and managing director, Mitraz Financial Services. He further said that a person might be in a job, earning lots of money or have substantial assets but may still not be doing things, which have priority in her life. “Many times someone may want to contribute time, money for causes that they believe in. However, they do not do it because of lack of awareness or belief that they cannot afford it. Life planning helps put things in perspective for a person and aids in prioritizing usage of time and money," said Bansal.
Life planning is a relatively new concept in India wherein financial planners are just about discovering its benefits of getting to know their clients better and then suggesting ways to plan their future around it. And though it’s been practiced in the US for about 10 years, it’s now gaining popularity worldwide.
“In life planning, we try to dig deeper to understand what’s truly important for clients and try to re-organize their money life to align with what’s truly important for them," said Vishal Dhawan, founder and chief executive officer, Plan Ahead Wealth Advisors, a Mumbai-based financial firm.
Dhawan recently spoke about the merits of life planning at a seminar of financial planners hosted by the Council of Financial Planners in Bengaluru. He cited an example of one of his clients who, despite being financially well off, lived a frugal life. Digging deeper, Dhawan discovered that the client had a desire since childhood to buy a Mercedes car. The client had grown up in a village where he recounted a man who owned a Mercedes and how it came to be known as a status symbol in his village during his growing up years. “But he refused to entertain his dream since he thought it was out of his reach, which clearly, we knew, it wasn’t," he said. However, Dhawan prevailed, and managed to convince his client to buy his dream car.
“The purpose of life planning is to deliver the life the individual most deeply aspires to, making sure the investment and financial planning delivers financially what the client most profoundly wants to achieve, rather than specific rates of return," said George Kinder, a UK-based financial planner—considered to be the father of life planning—over email. He is the founder of the Kinder Institute of Life Planning and trains financial planners worldwide in the art and science of life planning.
Making sense of expenses
When Puneet Kayastha, a 51-year old Mumbai-based executive started life planning with Dhawan, his financial planner, he started to understand his expenses better. Kayastha is married and has two children—a daughter and a son. When Kayastha and his wife started to plan for their daughter’s marriage, they had a certain “plan". “Dhawan made me realize that it would be a costly affair and explained to us the downsides. After a detailed discussion with him and our family together, we decided to go ahead with our plan. However, we did it after altering our asset allocation, selling off some investments even if it was at a loss for the sake of future cash flows," said Kayastha. The idea, he explained, is not about how much returns we want out of our investments. “Else, we would have never sold off our real estate investment. But it puts more meaning in our planning and working around our life to reach the goal," he said.
In many ways, life planning takes financial planning one step ahead.
When Coonoor-based 62 years old entrepreneur, C. Balagopal—another client of Mitraz—retired from his company that he had founded in 1983, he landed up with a sizeable retirement kitty. “I could have just invested the money in equity and debt markets; that would have been the default option," he said. But Balagopal had other plans.
Back in his working days (his own company was merged with a Japanese firm; a joint venture that he headed till his retirement), at a time when corporate social responsibility was still in its infancy, he used to donate to government schools in Thiruvananthapuram in Kerala, where his factories were located, to build their infrastructure. Convincing his Japanese partners was not a problem as it was all for a good cause. From building classrooms and playgrounds to buying sports equipment “to make education fun and ensure that kids don’t go fall in bad company or waste their time", Balagopal was always interested in giving back to society. And it is here that he has found his calling, after his retirement. He has now formed a trust where he has poured much of his retirement savings and works closely with non-governmental organizations that do the last mile connection.
A part of his retirement corpus has also gone into running a business incubation centre in Manipur, a state where Balagopal worked as an Indian Administrative Officer between 1977 and 1983 before he started his own venture.
Is life planning necessary?
Life planning is a copious process and could come at a cost. “We do not do life planning for every client since it is more expensive," said Dilshad Billimoria, a certified financial planner and director of Dilzer Consultants Pvt. Ltd. It’s tough to put a number as to how much life planning sessions cost because different financial planners charge differently. But Dhawan said that the fee for life planning is about twice as much as that of financial planning.
“It is always preferable to do life planning along with financial planning for everyone. However, life planning becomes more important at later stages of one’s life as one starts to think about retirement and faces questions like what they want to do then. A young professional may not appreciate the value of life planning completely as at this stage, she is more concerned with maximizing returns and lowering tax outgo," said Bansal.
He adds that it’s tough to separately price life planning as a commodity, but instead, comes as part of the top two slabs of his product suite (Mitraz offers four such suites). Dhawan, too, doesn’t have a price tag for the life planning services he offers to some of his clients—it gets bundled in the services offered, and is charged according to the number of hours and effort that goes in.
Gaurav Mashruwala, a Mumbai-based financial planner has a slightly different take. He believes that it’s not possible to do financial planning without life planning. “Financial planning cannot be treated in isolation. Finance is a part of life."
Kinder agrees. “Why would you leave a client’s needs, aspirations and goals out of the picture? Life planning is for everyone. For a client who is not life planned, there will be disappointments and inefficiencies and inappropriate decisions regarding money, because their aim is not clear," he said.
Mint Money take
Life planning is a new concept in India. In November 2013, Network FP Knowledge Solutions Pvt. Ltd (a company that trains financial planners) had organized a three-day workshop on life planning near Mumbai with Kinder Institute. A similar workshop is coming up later this year.
More planners are now understanding it and embedding it in their services. Some may offer selectively to those they think need it, and while others like Mashruwala don’t differentiate. Either way, it’s good for investors if financial planners aim to get to know you better when planning your finances.
Just ask Navaneetham how it feels. Last week, he got a visitor at his home who gave him a cheque of 10,000 as donation his trust. His name was Jayakumar, and he was one of the four students of the first batch that had received funding for their college education from Navaneetham’s trust in 2006. Jayakumar did his engineering in 2012 and is now employed at Bharat Electronics Ltd. Navaneetham said, “He now wants to sponsor the engineering education of another poor deserving student. It made us so happy and proud."
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