Rattan Chugh, CEO, Cornerstone Wealth Management, in an interview with Yogita Khatri of Myiris.com describes what one should look for in a financial advisor, outlines how can parents teach/ introduce their kids to personal finance, etc.
Rattan Chugh has over 20 years of experience with diverse companies ranging from start-ups to large multinationals. He started his career as a hand-on engineer in the information technology industry. He is an accomplished executive who has served in several key positions in the financial services industry. Prior to setting up Cornerstone Wealth Management, he was the head of country for Fidelity International`s business in India which included asset management, information technology and back office operations. He has served on the board of Fidelity Fund Management and Sanlam Investment Management India. He has expertise is setting up and scaling organizations with a strong process focus. He led ISO 9000 certification initiative for EDS and Fidelity in India. He has earlier worked with several globally recognized and renowned companies such as TATAs, American Express Bank and EDS. His experience gives him an excellent blend of working hands-on and also seeing the big picture.
> What led you to choose financial planning and wealth management as a career?
While setting up mutual fund business for Fidelity in India, I got to see the distribution of financial services products from close quarters. I could see that the vast majority of the Indian population does not have access to advisory driven financial services which is quite common in the U.S and U.K. With the Indian economy poised to grow rapidly, leading to higher investible incomes and propensity for saving, I expect the client base to demand advice, driven on the principles of financial planning and the clients` well being. This led me to serve in this arena and make a difference.
> What are the wealth management services that Cornerstone Wealth Management offers? How long have you been advising clients? What is your fee model?
We provide comprehensive financial planning services as well as assistance in implementation. For people who have just started accumulating savings, we help them work towards the goals that are important to them. For people who are well settled, we help them develop investment strategy that best suits their profile.
We also conduct game based workshops which impart the concepts of prudent financial management to the participants and help them get a better understanding of how to take charge of their finances. We take them through market cycles, personal situations, cash flow and balance sheet preparation. The game helps the participants experience the impact of their financial decisions on their long term wealth creation prospects. Feedback we`ve received is that it is a brilliant eye-opener.
We have various fee structures ranging from annual retainer, asset under advice to transactions based.
We have been in business since 2006.
> Based on your experience in giving financial planning advice, what are some common mistakes that your clients made prior to meeting with you?
In my experience, the clients lack the understanding of financial planning concepts, most of the investment decisions are adhoc, reactive or under the influence of a glib sales person. There is also a lot of inertia to take action and inadequate time is devoted to manage hard earned money.
> With the recent IRDA regulations on unit-linked insurance plans (ULIPs), insurance companies are coming up with gamut of new ULIP plans, how would you recommended to go for the same? What things would you recommend to keep in mind before choosing a plan?
We generally recommend clients to separately deal with their insurance and investment requirements. In our view term insurance plus mutual funds is a better option in most of the cases. Recent IRDA regulations make ULIPs more cost effective and therefore suitable instruments in some cases. For example, many clients end up redeeming mutual funds much before the set tenure. However, insurance plans are generally kept for long term.
> In today`s generation, how should parents teach/ introduce their kids to personal finance?
Parents can introduce the concepts of budgeting, expense tracking and regular savings in day to day life. They can lead by example.
> I want to give you Rs 500,000 and have you manage it, what would you recommend…if I was 25? 45? 65?
We would ask you for the following details:
1. Is this money set aside to support a particular goal?
2. When is the goal due? How long do you want to invest it for?
3. Do you have sufficient liquid funds to support you for 3 to 6 months in case of emergency?
4. What is your risk appetite and expected rate of return?
All the above have to be ascertained before making an investment plan.
> What should I look for in a financial advisor?
Use the standard competency model called KASH - knowledge, attitude, skills and habit - to assess his suitability.
Knowledge. Assess the advisor`s expertise in investments, insurance, tax, loans and the like. Is he professionally qualified and certified? Does he keep abreast with changes in the personal finance space?
Skills. Check whether the advisor has the right processes and tools to develop a suitable financial plan for you. Are his recommendations supported by research? Has he analyzed all aspects - the tax implications of his recommendation, for instance? Is he manufacturer-neutral or is he a dedicated agent of a particular company? Do you belong to his target client segment? For instance, if his focus is on high net worth individuals and you save Rs 10,000 a month, you might not get enough attention.
Attitude. Assess the way the advisor relates with you. Does he look at you as a customer who can be sold a few products or is he in it for a long-term? Will he spend time to understand your needs before offering recommendations to you?
Habit. The advisor should be disciplined and his advice, consistent with the agreed financial plan. He should not be tempted by opportunities that are not in line with your plan. He should be able to explain you every time he adjusts your portfolio and should not be merely churning it. Can you trust him not to abandon when the going gets tough?
> What three things would you recommend all existing and emerging families do with their financial picture right now?
1. Get your cash flow statement ready: What are your inflows, outflows, assets, loans.
2. List down your commitments that would cost you most money, by when you want to achieve and how much money would you need.
3. Consult a financial advisor to make a plan and then most importantly take action aligned to the plan.
> What three books related to personal finance would you recommend every person read and why?
There is enough material available on the net. I would recommend attending a workshop on financial planning. If you insist on reading a book, you can try - Optimal Investing - Scott P. Frush.