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Customer-centric approach by new breed of financial planners

Goal of certification is to convert savers into investors

AS INDIA's economic engine moves on to the fast track, the hitherto sidelined discipline of personal financial planning is taking centre stage. The process by which financial planning is organised for an individual — in a complex and often unpredictable financial environment for the lay person — is now being managed by a new breed of financial planners bearing the title of Certified Financial Planner (CFP), the highest global standard for such professionals.

Even though the Financial Planning Standards Board (FPSB) India certification will help transform the country's financial sector, there are many issues — such as how to make financial advice available to the masses — that will have to be discussed in the days to come.

No more stigma

The word `wealth' had a negative connotation in early socialist India. After the onset of liberalisation in the 1990s, however, this has changed radically. In present day India's complex financial world, it is deregulation, competition and innovation that mark the scene. Wealth is no longer something to be ashamed of or concealed, but is either flaunted or wisely deployed.

Earlier, Indian banks were only accepting savings from customers and disbursing credit. Now they are emerging as distributors of various financial products. In this context good investment advice is cardinal.

Historically and traditionally, India has witnessed a high level of household savings but rather poor levels of investment. Now a situation is emerging where investment channels are increasing tremendously and the challenge to channel these savings for national development and growth is being felt. The need for a certified financial professional should be seen against this background. The FPSB's dream is to successfully convert a nation of savers into a nation of investors and it is working towards creating a pool of talented professionals who will facilitate the achievement of this goal.

Speaking at a conference on financial planning recently, Shailesh Haribhakti, Chairman, FPSB India, explained that the certification would not end with the course but would entail continuing education to help raise the bar of quality that CFPs would bring to the investor community. The goal, he said, was to get FPSB India's work recognised by the complete spectrum of regulators as providing a valuable service.

Holistic process

At the same conference, Uday Kotak, Vice Chairman, Kotak Mahindra Bank, spoke of the conflicts that exist in the field of financial advice. He gave the example of "what is right for the investor versus what would be right for the advisor,'' in an oblique reference to the fact that often commissions drive investment advice. He said that FPSB India's efforts would be devoted to sorting out such conflicts, making the process investor-centric. As markets integrate, said Mr. Kotak, the real challenge would lie in managing the different regulatory aspects.

Organisers of financial planning are now collaborating to unify the profession around accepted standards and provide a single and consistent message for individuals, government, allied professionals and occupations, financial services providers and the media, states the body's vision document. "Financial planning is a process of helping an individual to meet his or her life goals through their finances. It is not a sales-focussed approach but a customer-centric approach,'' said Ranjeet S. Mudholkar, Chief Executive Officer, FPSB India. Earlier, people looked at financial planning as a tax optimising mechanism. Now it is a holistic approach towards all disciplines of personal finance — insurance, tax, retirement, estate planning and so on. Wealth management is just an offshoot of financial planning.

Explaining the difference between an `agent' and a `financial planner,' Mr. Mudholkar said, "The former is an agent of a company. But a financial planner studies an individual's financial background and needs and like a physician in the medical world gives solutions to the problems.'' According to him, to suggest a good financial plan to an individual, a planner will have several meetings with the investor. "A case has to be prepared, then a solution has to be offered and it has to be monitored periodically.'' Mr. Mudholkar further said that the board would enforce strict ethical standards. It would also have the right to check the books of its registered practitioners as well as the files of individual customers of financial planners. Professional financial planners and establishments are differentiated and distinguished from generic financial advisors and firms who meet only minimum statutory compliance standards. Financial Planning Certification through authorised use of the CFP marks distinguishes those who are competent to practise financial planning in a professional manner. FPSB India's vision of success is "professional self-regulation that fosters a strong, unified and vibrant financial planning profession that ethically and competitively serves increasing numbers of individuals by helping them to make prudent financial decisions.''

However, pricing of this service and its affordability would remain major issues in the Indian scenario. "The investor should have the last word,'' said M. Damodaran, Chairman, Securities and Exchange Board of India. At the conference, he referred to certified financial planners as professionals who would provide value, based on services that would be characterised by credibility and commitment.

Pricing of services

However, in an oblique reference to the perceived expensiveness of such advice, Mr. Damodaran said that in the Indian scenario, "pricing of services'' would be a major issue. "Do you provide such advice only to someone who already has created wealth, is it not necessary for those who are yet to do so?'' was the question he posed. He said it was a huge challenge to provide good, competent and honest advice. Once the industry grows and the number of CFPs increases, the board must search its soul and find answers to these questions.

OOMMEN A. NINAN

in Mumbai

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