Thursday, September 06, 2007
The Makings of a Great Financial Plan
How do you know if your financial plan will help lay a solid foundation to a bright financial future as well as can cater for every unforeseen circumstance that might potentially throw you off course?
Here we provide an insight to the makings of a great financial plan.
An accurate fact find
As the saying goes ‘garbage in, garbage out’! The more accurate the data provided by you, the better your adviser will be able to assess your financial position and to recommend suitable solutions to address your needs and wants. Do rely on source documents whenever possible rather than on memory. Our minds can play tricks on us sometimes. If you have chosen to withhold some information from your adviser for whatever reasons, do acknowledge that the omissions might result in certain limitations in your financial plan.
Your adviser – the facilitator
Some advisers treat fact-finding as a purely quantitative process where they extract numerical data from you. However, a great financial plan requires the incorporation of both quantitative and qualitative data such as your money values, family relationships and other ‘soft’ data. It is easy to obtain quantitative data but only a good financial adviser will be able to tease out the relevant qualitative data through his ability to ask the right questions.
The most valued financial advisers are not only competent in their field but also possess good listening skills, the ability to empathize and not make assumptions based on their own experiences.
Another important factor is how comfortable are you with him? No matter how great he is as an adviser, you might want to reconsider the adviser-client relationship if you find that you cannot be yourself or be completely honest with him.
Getting your priorities right
Not many of us can afford to indulge in our every whim and fancy due to limited financial resources. So, your financial plan should take care of your needs first before satisfying your wants. However, it is not always easy to distinguish the needs from the wants.
It is a human tendency to avoid unpleasant things and seek immediate gratifications. One of the reasons why many people are under-insured is because issues such as death, disability or illnesses are avoided because they are unpleasant and tend to create discomfort and insecurities in people. It is also extremely difficult to convince people to put off their current consumption so as to meet future consumption because whereas the negative effect of delayed gratification will be immediately felt, the positive effect of the action will only be apparent much later.
Shifting societal norms have also blurred the line separating a need from a want. Is it a ‘need’ or a ‘want’ to own a roof over your head or to start a family or to own a car?
Matching your needs to the solutions
There have been much negative media publicity lately in the newspapers about the problems associated with investment-linked policies, endowment policies and bank structured deposits. Fingers are often pointed at the financial products for being flawed. However, the real problem is the inappropriate matching of needs to products and this often arises from inadequate fact find, the lack of disclosure and understanding of the pros and cons of the products. Although advisers are required by law to ensure proper disclosures, not every adviser will spell out everything to the most minute detail. As a consumer, do seek clarifications when in doubt.
Do yourself a favour by going through your financial portfolio today to see if the plans that you have gotten many years ago really cater to your financial needs. When in doubt, do take a proactive approach in raising your concerns with the financial experts.
Diversify, diversify, diversify
Do not to put all our eggs in one basket! This rule of thumb applies to many aspects of a financial plan. In this very complex financial marketplace, experts have established that the performances of different financial instruments often do not move in tandem. By mixing-and-matching different instruments, product types, product durations, product vendors, we can in effect spread out and hence reduce the risks and increase our chances of achieving better outcomes. Diversification is an intricate strategy that requires careful planning and proper asset allocation. There may be a need to evaluate the different financial instruments offered by the different providers to ascertain the ‘optimal solution’. This is likely to be a combination of products that are different yet complimentary to one another. And this ‘optimal solution’ should be sufficiently diversified yet not too arduous to comprehend or maintain.
Keeping track and keeping up
A financial plan is not something that you draw up and execute at age 25, shelf it and then relook at it again only at age 55. It is to be an ongoing process that requires regular monitoring to ensure that everything is going on as planned. When financial planning is carried out at an early age, the initial blueprint tends to be a scanty one due perhaps to the lack of resources or the lack of commitments. However, as one grows older and assumes bigger responsibilities, the needs and wants will change and the financial portfolio should ‘grow’ to reflect the lifestyle and lifecycle changes.
Ideal scenario can be far from the actual situation. There will be changes to personal circumstances, government laws, general economic environment and products/services offerings along the way. It is important for you & your adviser to constantly monitor and review the soundness of the recommendations to identify potential problems or shortfalls. This is to ensure that timely modifications can be made to address changing circumstances which might affect your progress towards your financial goals – and you do not want to realize this only too late. Financial planning is a long term process so your financial adviser will be the one growing old with you!
Discipline, hard work and financial literacy
I always stress to my clients the importance of financial literacy which is the key factor why I started this newsletter. The financial services industry has grown more complex than ever with more sophisticated products and financial transactions. Someone once told me that a financially ignorant person is like an inexperienced swimmer trying to swim in shark-infested choppy waters - sooner or later, he either drowns or gets eaten up!
Clearly then, financial know-how is your immunity for survivor in this complex financial marketplace. Financial literacy is also about knowing oneself. As a practitioner, I have over the years come across many bright and successful executives who are clueless when it comes to managing their own finances.
If you are the DIY kind of person who prefers to handle your own finances, just make sure you have done proper research on the possible options available so that you do not shortchange yourself. The more you know about your own financial needs and the options available to you, the more fruitful the discussions will be between you and your adviser.
To me, the more knowledgeable my clients become, the more I will seek to further improve myself so that I can continue to value-add my clients. This way, my clients and I will grow together and become more financially-savvy each and every single day.
So remember, in the financial world, ignorance is definitely not bliss – it can be very costly!
Here we provide an insight to the makings of a great financial plan.
An accurate fact find
As the saying goes ‘garbage in, garbage out’! The more accurate the data provided by you, the better your adviser will be able to assess your financial position and to recommend suitable solutions to address your needs and wants. Do rely on source documents whenever possible rather than on memory. Our minds can play tricks on us sometimes. If you have chosen to withhold some information from your adviser for whatever reasons, do acknowledge that the omissions might result in certain limitations in your financial plan.
Your adviser – the facilitator
Some advisers treat fact-finding as a purely quantitative process where they extract numerical data from you. However, a great financial plan requires the incorporation of both quantitative and qualitative data such as your money values, family relationships and other ‘soft’ data. It is easy to obtain quantitative data but only a good financial adviser will be able to tease out the relevant qualitative data through his ability to ask the right questions.
The most valued financial advisers are not only competent in their field but also possess good listening skills, the ability to empathize and not make assumptions based on their own experiences.
Another important factor is how comfortable are you with him? No matter how great he is as an adviser, you might want to reconsider the adviser-client relationship if you find that you cannot be yourself or be completely honest with him.
Getting your priorities right
Not many of us can afford to indulge in our every whim and fancy due to limited financial resources. So, your financial plan should take care of your needs first before satisfying your wants. However, it is not always easy to distinguish the needs from the wants.
It is a human tendency to avoid unpleasant things and seek immediate gratifications. One of the reasons why many people are under-insured is because issues such as death, disability or illnesses are avoided because they are unpleasant and tend to create discomfort and insecurities in people. It is also extremely difficult to convince people to put off their current consumption so as to meet future consumption because whereas the negative effect of delayed gratification will be immediately felt, the positive effect of the action will only be apparent much later.
Shifting societal norms have also blurred the line separating a need from a want. Is it a ‘need’ or a ‘want’ to own a roof over your head or to start a family or to own a car?
Matching your needs to the solutions
There have been much negative media publicity lately in the newspapers about the problems associated with investment-linked policies, endowment policies and bank structured deposits. Fingers are often pointed at the financial products for being flawed. However, the real problem is the inappropriate matching of needs to products and this often arises from inadequate fact find, the lack of disclosure and understanding of the pros and cons of the products. Although advisers are required by law to ensure proper disclosures, not every adviser will spell out everything to the most minute detail. As a consumer, do seek clarifications when in doubt.
Do yourself a favour by going through your financial portfolio today to see if the plans that you have gotten many years ago really cater to your financial needs. When in doubt, do take a proactive approach in raising your concerns with the financial experts.
Diversify, diversify, diversify
Do not to put all our eggs in one basket! This rule of thumb applies to many aspects of a financial plan. In this very complex financial marketplace, experts have established that the performances of different financial instruments often do not move in tandem. By mixing-and-matching different instruments, product types, product durations, product vendors, we can in effect spread out and hence reduce the risks and increase our chances of achieving better outcomes. Diversification is an intricate strategy that requires careful planning and proper asset allocation. There may be a need to evaluate the different financial instruments offered by the different providers to ascertain the ‘optimal solution’. This is likely to be a combination of products that are different yet complimentary to one another. And this ‘optimal solution’ should be sufficiently diversified yet not too arduous to comprehend or maintain.
Keeping track and keeping up
A financial plan is not something that you draw up and execute at age 25, shelf it and then relook at it again only at age 55. It is to be an ongoing process that requires regular monitoring to ensure that everything is going on as planned. When financial planning is carried out at an early age, the initial blueprint tends to be a scanty one due perhaps to the lack of resources or the lack of commitments. However, as one grows older and assumes bigger responsibilities, the needs and wants will change and the financial portfolio should ‘grow’ to reflect the lifestyle and lifecycle changes.
Ideal scenario can be far from the actual situation. There will be changes to personal circumstances, government laws, general economic environment and products/services offerings along the way. It is important for you & your adviser to constantly monitor and review the soundness of the recommendations to identify potential problems or shortfalls. This is to ensure that timely modifications can be made to address changing circumstances which might affect your progress towards your financial goals – and you do not want to realize this only too late. Financial planning is a long term process so your financial adviser will be the one growing old with you!
Discipline, hard work and financial literacy
I always stress to my clients the importance of financial literacy which is the key factor why I started this newsletter. The financial services industry has grown more complex than ever with more sophisticated products and financial transactions. Someone once told me that a financially ignorant person is like an inexperienced swimmer trying to swim in shark-infested choppy waters - sooner or later, he either drowns or gets eaten up!
Clearly then, financial know-how is your immunity for survivor in this complex financial marketplace. Financial literacy is also about knowing oneself. As a practitioner, I have over the years come across many bright and successful executives who are clueless when it comes to managing their own finances.
If you are the DIY kind of person who prefers to handle your own finances, just make sure you have done proper research on the possible options available so that you do not shortchange yourself. The more you know about your own financial needs and the options available to you, the more fruitful the discussions will be between you and your adviser.
To me, the more knowledgeable my clients become, the more I will seek to further improve myself so that I can continue to value-add my clients. This way, my clients and I will grow together and become more financially-savvy each and every single day.
So remember, in the financial world, ignorance is definitely not bliss – it can be very costly!
