During my interactions with Ashish, a Business Loan Consultant for 15 years, and Shilpi, working for a bank for the last 12 years, they observed - “When I got married, me and my life partner sat together to plan our finances for future needs. We started with entering financial data about income, expenses, insurance premiums, EMIs and investments in an excel sheet. This was easy part, and we thought, we are experts in financial planning, but when it came to defining future needs together, we found that we need someone who can help us do that, as even after searching for information we waited for 6 months but were unable to define and more importantly prioritize the same. We realized we need someone, especially when we started having difference of opinion in the process of discussions in defining and prioritizing”.
When I started my CFP study back in 2011-2012 for the first time, I used to wonder about the data and details given in case study and ask myself - how are these case studies made and the data collected? In practical world, clients do not hand over their details of goals, life needs and life challenges and financial data in form of case study.
Financial planning needs great communication, listening & even silence skills.
It is only when I actually started interacting with clients in 2012-2013, that I realized that they expect the financial planner to ask questions & probe in a manner which help them define, join dots, collect & collate data & that is the time, I realized that financial planning needs great communication, listening & even silence skills which requires experience & a lot of practice.
When following step 2 of the financial planning process, i.e. collecting clients information, a whole lot of coaching and life experience with great communication skill is needed when it comes to goal defining and prioritizing
Why goal prioritising is important?
We all know that most of us - be it poor, lower middle-class, high net worth or of any age and family background, have multiple needs, while resources are always limited at that point in time.
As a student it is given to us in the case study that which one of the goals is more important and which one is the number one goal to be satisfied. But, when we as financial planners sit across with clients for collecting information, it is we who have to help them define and prioritize, as individual family members have different priorities at different point in time as per life stage and experience.
Let me share this with an example.
I was sitting across with Neha and Naman at my first data understanding & collection meeting. While about 8 goals were listed after helping them actually define Why, What, For Whom, When, How Often (frequency of occurrence) and What amount is required if they had to fulfil that goal today, there was particularly a point of time where the couple started discussing and arguing, which also put me under an awkward situation.
It was about their ‘First Car’ buying goal (down payment), where Naman shared that they need that goal to be satisfied in the year 2021 and it was a number 4 goal for him. Meanwhile, Neha said that the down payment for first car goal needs to be satisfied in year 2023, and before that they will have to be ready with ‘first year school fees’ goal which is coming in 2022 and this needs to be their number 4 goal. Naman thought that school fees would not be that big amount and regular cash flow will help them pay for the first year playschool fees.
Now, as a financial planner this was an awkward situation for me. Whether to give importance to First Year of schooling fees for Playschool or to the car’s down payment and more important whether to give priority to a goal coming first or the one that is coming later and also, whom to follow, Naman or Neha.
It needed experience and good communication skill to handle the situation and right questions to plot ensuring they are clear and on same page.
It was not simple, but I asked them a question?
Which one is a responsibility goal and which one is a dream or an aspirational goal, and they both responded at the same time, “Okay, let us give higher priority to play school fees (number 4) and lower priority to car down payment (number 5), if the cash flow allocation seems a challenge”.
To address cash flow challenge query at data collection I had to plot another question.
If you have cash constraint for allotment and if both these goals are falling on the same day, what is more important? And both responded to put higher priority (number 4) to play-school fees.
Financial planners have a role to play in helping the clients define goals and help them categorize into one of the three goal priority levels.
How to curate communication under similar situations?
As a Financial Planner each one of us come across such situations, and they will keep coming for lifetime, but we need to prepare 3 simple buckets before putting numbers to each of the goals, which are:
A_ Basic
B_ Dream
C_ Aspiration
Basic Life Need or Goal
With existence comes duties and responsibilities. The day anyone is born there are certain inherent responsibilities and duties on the person which may differ from family to family, but for sure they are there for one to satisfy. Such life needs or goals, are BASIC GOALS. Food-Shelter-Clothing - anything and everything related to this are all basic goals and even if a person is on bed it will always bother him or her.
Dream Life Need or Goal
Vacation, car or a bigger car, second home, bigger house, foreign education, shopping for luxurious household items etc. Some of these may fall into basic for some families and some of these may fall into dream for other families, and hence it becomes very important for a financial planner to help the client’s family define and prioritize the same.
Aspirational Life Need or Goal
A foreign trip every year, buying luxury cars, buying a beach facing bungalow, buying a private island, meeting idols, having private jet, having bigger and luxurious house etc. are some examples of aspirational goals. Again, for some, few of these life needs may fall into basic or dream and for others it may fall into aspirations. It depends on how the family themselves define, but a financial planner has definitely a role to play in helping the clients define it and help them categorize into one of the three goal priority levels and then help them number the goals.
It is only when the financial planner has a clear list of well-defined, well prioritized and mutually agreeable life needs by all stake holders of the family she/he can work and make a financial analysis and prepare a financial plan. In my opinion it is most important for a financial planner to help the client family not only define, but also prioritize the goals.
Let me share a couple of examples from my practice where I had to rework the plan. It made me learn and realize that it is a financial planner’s job to help the clients define and prioritize their life needs.
Buying a bigger house
A client once came to my office. He wanted to upgrade his house (buy a bigger house) after 3 years. It was well-defined by this client that it is their number one goal, and I planned and started his investments for the down payment plus, some more, such that the EMIs would be comfortable. After 3 years when it came to buying, the client was ready with not only the down payment, but also with some surplus.
However, the actual house was bought for about Rs. 50 lakh more than what was planned. While the client opined that there was no fault of mine, I think I failed. When defining and prioritizing the goal of buying a bigger house was happening, the couple had been probed by me in detail. While the client decided to calculate the money only for the kitchen and expenses related to kitchen equipment in the new home, his spouse had put forth that they would also need a new wardrobe (furniture) and a bigger kitchen, to which my client did not agree. I could have probed more, but because my client had cut the conversation there, I also stopped. I think I could I saved their disturbance if I had probed better at the initial phase.
After this incidence, I never leave any discussion open and do my best to help the client’s whole family open up, talk, discuss and mutually define and prioritize life goals.
Usage of redeemed amount
While recommending a client on current mutual fund schemes, I advised him to redeem a few ELSS Schemes and a few other schemes as well in his spouse’s name.
The client had just started a new business and was heavily invested in it. He required emergency fund preparation and a home upgrade.
Once the redeemed amount came to his bank account, I suggested keeping them in one of the ultra short-term funds. However, the client and his spouse differed on the usage and priority between emergency fund and buying of a home. It is the job of a financial planner to not only help define but also explain the importance of an emergency fund and that this should be the number 1 priority, which I missed while we were discussing the goal defining, goal prioritizing and even while presenting the plan. It took me a couple of meetings to come to a mutual understanding and actually act upon.
With these and similar life examples I gained maturity and experience. After years of practice I can now say that financial planners must discuss and prioritize life goals of every client into Basic, Dream and Aspirational and have them reach at a mutual consensus before proceeding further.
Viresh Patel, CFPCM, is a Fee only Practicing Financial Planner and Principal Officer, Financial North.