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When it comes to Financial Planning Trust matters most



Trust is important while you approach a planner.


Imagine a scenario… you go to a doctor, who examines you and comes up with a diagnosis of what the ailment is and what medicines you need and for how long. Would you turn around and tell the doctor that the ailment actually is something else, the medicines suggested are therefore not suitable and that you want a different set of medicines. Could he kindly prescribe those?


Obviously, this sounds silly. No one in his senses would do that… and yet it happens when it comes to people's investments.


Investors assume they know well enough to dictate what they would want to take up for investments. As financial planners, we do come across such clients occasionally… can we change our recommendation to . 1 crore of insurance instead of . 2.5 crore, which we have recommended? Can we suggest investments in FDs & NSCs, instead of mutual funds we have suggested?
You understand what I mean… people who have come to us for advice, pay our fee and get a comprehensive plan done, tell us what they want to do! It's frustrating that after spending around 30 hours to complete the plan to hear them say that they want to do something entirely different. Why do they want to do that? Because, their helpful friend had told them that they would be chumps to invest in some mutual funds suggested by some third party. Shaken, by this revelation, they seek out another colleague to get a third opinion!


Now, this colleague has the reputation of being a wizard of stock markets and has several pearls of wisdom on investing. His take… just investing in equity - mutual fund is for wimps and FDs are for grandfathers.


By now, confusion reigns supreme and they come up with a compromise. They would not want to invest in MF schemes as suggested, but would want to invest a portion of it in equity, in a few stocks they have heard of in the office and the rest would go to FDs! Our analysis and strategy be damned!


In any endeavour, things will work out only if advice is followed completely. Trust is important. If you are not able to trust your planner to come up with a good plan, why approach them in the first place?


That's why they used to say that if you approach a guru, you need to stay the course with him and do all that he asks you to do. A guru can take a student to the destination only if the student is willing to walk the path chalked out by the guru. Each guru's path might be different. If a student were to jump from guru to guru, he will learn nothing and go nowhere. It is like digging two feet at 20 places and expecting water to gush out.


There are others who choose to execute a portion of the recommendations, but ignore some others. For instance, one may complete investments as per the suggestions but choose to ignore insurance recommendations, as the life cover recommended seems too high. This again is like a patient having only two of the four tablets suggested. It will not lead to a complete cure.


In finance, this problem exists as investors tend to think that if they are familiar with some products, they can do it themselves. So why did they approach a planner? Because they were not sure if they are right in the first place. Then, they argue with the planner about the merits of what they have in mind, about investments and insurance. And then take a call to do some of what the planner has suggested and some as per their predilection.


That does not work. It works only when the relationship is a trusting relationship… just like in a marriage. It makes no sense if the spouse constantly keeps a tab on the significant other. Trust in these relationships has to be complete… like the trapeze artist who is willing to let go the bar and leap with the full trust that his partner will catch him. We have seen that in circuses. That is trust. Before trusting anyone so much, of course do the due diligence. But once you have satisfied yourself, you have to let go – like that trapeze artist! Nothing works like trust.
 

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