By Prof Sameer Lakhani

Refer to Draft Letter of Engagement (Sample)

1) Establishing Client Planner Relationship: Identifying the Services to be provided.Disclosing the Financial planners Compensation Arrangement.Establishing the duration of the Engagement. Determining the clients and the Financial Planner Responsibilities.

Client responsibilities includes: Provide accurate and complete information. Participating in the entire process from implementation of the plan to review process.Financial Planner responsibilities includes: Acting in the clients Interest.Ensuring security of confidential Information.Ensuring advice based on clients needs & objectives.Updating himself with the latest industry developments to serve clients better.

(Refer to sample data survey form)

2) Gathering Client Data and Determing Goals and Expectations: This step addresses the task of determing a clients personal and financial goals, needs and priorities, assessing a clients values, attitude towards risk and expectation and determing a client time horizon.

Obtaining Quantitative Information and Documents pertaining to the clients financial resources, obligations and personal situation.

Financial planner should record information about the clients under the following categories:

Quantitative DataQualitative DataAssets & LiabilitiesHealth status of client & family membersCash Inflows & OutflowsInterest & HobbiesInsurance Policy InformationExpectation about EmploymentTax returns for last several yearsAnticipated changes in current / future lifestyleDetails on Current InvestmentsProperty DeedsEPF / PPF statementsCopies of wills & trust

3) Analyzing Clients Objectives Needs & Financial Situations:

General CategorySpecial NeedsRisk ManagementInvestments Tax CategoryFinancial StatusDivorce / Remarriage considerationsLife coverageAnalysis & Evaluation of Current InvestmentsTax ReturnsAssets Charitable planningDisability InsuranceCurrent Tax liabilitiesLiabilitiesAdult dependentHealth InsuranceTax savings strategiesCash flowDisabled childProperty insuranceDebt ManagementTerminal IllnessAuto InsuranceCapital NeedsRetirement categoryEstate planAssets marked for retirement benefit such as PPF , EPF,Gratuity ,client employee benefit Evaluation of Estate planning documents & strategies

3) Analyzing Clients Objectives Needs & Financial Situations:

Benefits of fact finding exercise: Help you to answer questions likeE.g. How much life insurance coverage is required by the client in the event of death, disability, retirement, childrens education etc.Fact finding process enables the client to prioritize his needs so that resources can be allocated to more important needs.Process can identify any present or future changes in the clients position that will affect him financially and allow appropriate responses to be made.The client may concentrate on meeting his present needs at the expense of his long term needs.

Developing and creating a Comprehensive financial plan:

After analyzing the client current situation the financial planner shall identify alternatives action. This analysis may involve but it is not limited to considering multiple assumptions, conducting research or consulting with other professionals.

Following points are important with respect to comprehensive financial plan:Client profiling.Freezing goals and objectives.Identifying the gap between current situation and goals.Budgeting

4) Developing and creating a Comprehensive financial plan:Recommendation should be consistent with and will be affected by:Mutually defined scope of the engagement.Mutually defined client goals, needs & priorities.Quantitative data provided by the client.Personal and economic assumptions.(Refer to Contents -Comprehensive Financial Plan )Presenting the Financial Planning RecommendationsPlanner shall communicate the factors critical to the clients understanding of the recommendation.Recommendation may achieve the clients goals, needs & priorities but changes in personal & economic conditions could alter the intended outcome.Recommendation must also show computations and forecast to illustrate the financial position of the client should the recommendations be implemented.Financial Planner job is to meticulously research his or her recommendation with substantial justification before committing any recommendation.

5) Implementing the financial plan: Financial planner responsibilities includeIdentifying activities necessary for implementationReferring to other professionalsSelecting and securing products & services.Letter of Authority to Act would state explicitly the scope and authority of the financial planner or any other professionals that the financial planner would be working with.

6) Monitoring the Financial Plan:Measuring portfolio performance and compare as per projection.Meeting personal investment goal is far more important over performing or underperforming the market benchmark.Changing tax, law, rules & regulations and economic environment.Changes in the profile / circumstances of the client.Financial planner evaluates new financial products for possible inclusion in the financial plan.

SummaryEach stage of the financial planning process requires the financial planner to exercise due care and diligence.It would be negligent on the part of financial planner if any of the steps within the process is not meticulously addressed.It would be prudent for the financial planner to constantly upgrade himself / herself through continuing education not because it is one of the requirements of FPSB but because it is a value added service that the consumer come to expect of a professional.

*