In an exclusive interview with Pooja Chopra Goel of Myiris.com, Karim Lakhani, Chief Planner & Managing Partner, 3rd EYE Financial Planners explores the business of financial planning and how investors can use it to their advantage.
> Can you tell us about `3rd EYE Financial Planners` and its mission & services? What services do you offer?
3rd EYE Financial Planners is a fee based financial planning company. We provide comprehensive financial plan and services to our clients. The objective of the financial planning service is only advice and not to sell any financial product to the clients. We have a separate financial planning and portfolio management & maintenance division who specialize in their domain. The financial plan consists of the following but not limited to:
> Cash flow and budgeting
> Analysis of current financial condition
> Risk management and insurance planning
> Debt management
> Asset allocation and rebalancing of existing investment portfolio, if warranted
> Investment planning
> Goal funding with analysis and budgeting and planning for the goals
> Tax planning
> Estate planning
Our mission is to provide efficient and best quality advice and services to our clients. We provide wide range of services to our clients that are tailor made to fit into each individual needs and requirements. Our services include:
> Comprehensive plan construction
> Product specific advisory
> Plan implementation assistance
> Portfolio review
> Financial plan review
> Portfolio management
> Ongoing portfolio maintenance services
> Assistance in tax filing
> Assistance in `Will` creation and registration
> And others as per the need and requirement of the client limited to our expertise.
> How and when did you join the financial advisory services profession? How would you describe your journey so far?
I have always wanted to do something new and different and same was applicable to my career selection. When I came across CFP course the work appealed to me and it was something similar I was looking for. Even before I completed the course I was offered a job from one of the country`s biggest brokerage & investment advisory company. I joined as assistant manager in one of the branch and within a period of two months I was promoted as financial planning manager for the entire state of Andhra Pradesh. After a few years, I decided to quit my job and started providing comprehensive financial planning services.
The journey till date has been very encouraging and I never found any difficulty as my CFP qualification, financial planning orientation, professional advisory approach, experience and my passion makes me to stand apart from other advisors in the industry. Further, 3rd Eye has been focusing only in advisory without any bias to recommend any product, as we derive our revenues only on financial planning fees and not from commissions / brokerages from product sales which has made our advice more acceptable and most preferred. Frankly, 3rd Eye never needed to compete and compare our offerings with others as every aspect of financial planning has been arrived at on the basis of scientifically proven models, which are capable of being the best at all times to come.
> Who should think about getting a financial advisor? Is it just for the wealthy or can anyone use the services of a financial advisor?
Any person who has any financial goal(s), or having any financial dependant(s) need to have his financial plan done through any certified financial planner. It is not just only for the wealthy or affluent, but for every individual, whether one is disciplined in saving and investing or not. Most often person(s) not financially very well off stands to benefits most by having his/ her financial plan done.
> How does a financial advisor make his living and is there any conflict of interest between him and his customers?
There are various models of revenue for financial advisors like fee only, fee + commission or only commission. Among all the models fee only model works out to be in the best interest of the client/investor as the advice he/ she derives would be devoid of any kind of bias. In all other models there is always a possibility for any conflict of interest. Also the advisors who sells the product may not have access to all the products available in the market also limits the scope of advice and reliability. In fact most investors end up getting very paltry returns on their investments because of the commissions/ brokerages that are paid to advisors/agents to solicit products are much more than the fees any financial planner would charge.
> What`s the one thing most people don`t know about what a financial planner does?
It is a myth that financial planner is someone akin to an investment advisor. They believe that all the financial planners will advice on how to invest their money to generate maximum returns. But this is not true, an investment advisor may only advice on investments but a financial planner`s job is much beyond investment advisory. A financial planner works on various aspect of individuals finance like budgeting, debt management, tax planning , scientific asset allocation strategy and much more. To phrase it in one line - ``Financial planner is someone like a family physician and not a chemist.``
> What one secret of your success can you share with others who seek to launch their own financial planning services business?
If you have zeal to help others and create difference in the life of others, then you should become a financial planner. But becoming a financial planner brings along lots of moral, social, ethical and financial responsibilities as the client wholly trusts the financial planner and is dependent on the advice the planner recommends which is considered to be crucial financial decisions in their lives. I know many CFPs who are not practicing as they do not want to come out of their comfort zone and start up their own practice. But one thing I am very confident about is there are many investors / persons seeking good planners and advisors. It is this that prompted and motivated me to give up the comfort of a job to start my firm. The secret to success is to build long term relations with the client by giving them unbiased and advice best in their interest along with prompt service. A service oriented financial planner will be more successful and satisfied than sales oriented planner.
> An expert says, ``Knowing how the tax system works is an essential component in your personal financial planning. The only way to learn how our tax system works is to actually fill out the forms.`` Is it important for every taxpayer to prepare his/her own income taxes? Should investors view tax planning as a strategy to create wealth to meet their future needs?
There is a big difference between tax filing and tax planning. As the tax filing process is becoming simpler and is also being made available online it is required that everyone should learn and prepare their income tax returns. It is also required to have a proper tax planning strategy in place as it can save lot of tax in due course. Proper planning can save good amounts of tax. This can also help in the process of wealth creation as it is said that - ``A rupee saved is a rupee earned``, which can be properly invested for future needs. Also proper tax planning can save a good amount of tax even in future by proper selection of investment options, thus safe guarding the future goals and money requirements.
> How often would you suggest reviewing and rebalancing a portfolio?
Review is an activity and rebalancing a portfolio is an action. We can decide a fixed time or period gap for review but portfolio rebalancing can only be done based on the investment performance. If the performance is as per the projection or expectation then rebalancing may not be required but regular review is must in order to keep a track on the performance. As far as frequency of review is concerned, I believe there is no standard duration or time gap for review which fits all; rather it differs for client to client depending upon:
> Size of portfolio: A huge size of the portfolio needs more frequent reviews than a small size portfolio.
> Mode of investment: An investment made in lump sum need more frequent review than an systematic investment plan (SIP).
> Type and diversification of portfolio: An equity oriented portfolio, not properly diversified needs more frequent review than a debt oriented portfolio or a diversified equity portfolio.
> Tenure of investment: A short term portfolio needs more frequent review than a long term.
> What is your take on current market situation? What are the key factors that will drive the stock markets in 2011? What is your advice to retail investors now?
Stock markets are never bad at any time period, if it is in bearish phase it gives an opportunity to enter in the market and if it is in bullish phase its gives an opportunity to exit and book profits. In financial planning we do not try to time the market and use stock market as a long term investment option. One should not try to play with the market and expect short term abnormal returns. The mantra to make money in stock market is by investing regularly and be patient. Today markets are driven mostly by interest rate movements in the international markets. If interest rates are low, it results in money gushing into developing and emerging markets and most Asian countries stands to benefit. However, it brings its own associated issues like exchange rate management and related issues. The Indian economy is marching and growing at a faster pace, external factors may not affect the growth substantially in the long term. Indian stock market and Indian economy go hand in hand and no major setback is forecasted over long period. In the short term markets are always volatile and risky, but at the same time they give buying opportunities. This market is ideal for those who have long term horizon of minimum of 5 years and above.
> Is there anything else you would like to share with our readers?
Each and every individual should have a financial plan in place whether made by a planner or by him/her self. Professional advice is always safe and preferred, but at the same time one should never expect too much from financial planning and financial planner. Financial planners aren`t a guarantee or magic solution but they can be of help in many circumstances. Planners are not advising to get the highest returns from the market, but they advise you to get right or required returns based on your risk profile and risk taking ability. Responsibility of performance of the portfolio does not solely lie on the planner but the client is equally responsible as he should be well aware about the strategy and products where he/she is investing. Also another important thing I would like to share is many people call themselves as financial advisors or financial planner but one need to select the right one. One easy way would be approaching a CFPCM as they are expected to abide by the laws and Code of Conduct of Financial Planning Standard Board, India by sticking to 4Es i.e. education, examination, ethics and experience.