“With so much information available at our fingertips, what is the value addition your wealth management firm brings to our personal finances?”
A young, savvy prospect asked me this during one of our introductory meetings.
It is a familiar question—and increasingly, a common thought process among many people today.
Let me explain this broadly.
Financial Planning and Wealth Management is not about selecting high-return products.
Any technology platform can compare products, analyse past data and display performance.
Financial planning is about understanding a person psychologically—his or her biases, risk profile, cash flows, financial goals and priorities, existing assets, insurance, liabilities and loans.
Based on this understanding, a suitable strategy is developed and, where required, implemented.
That itself may look like a lot of work.
But the real action starts after the plan is made.
A financial plan typically has short-, medium- and long-term horizons.
The real challenge is for the individual to stay with the plan through both good times and bad.
This is particularly important with investments.
A good investment product may generate, say, 15% per annum over five years. But the average investor may earn considerably less—not necessarily because the product performed poorly, but because the investor entered at the wrong time, exited during a correction, switched based on recent performance, or simply failed to remain invested.
This difference is often referred to as the behavioural gap—the difference between the outcome a sound investment strategy could potentially deliver and the outcome an investor actually experiences because of behavioural decisions.
Take an aggressive equity mutual fund as an example.
The fund manager has a defined mandate and works towards generating returns relative to an appropriate benchmark such as the Nifty 50 TRI or Nifty 500 TRI. But the fund manager does not know the individual circumstances, financial goals, cash flows or risk capacity of each investor in the fund.
Nor can most investors realistically expect to understand every investment decision or market communication beyond looking at past performance.
This is where the financial planner or wealth manager comes in.
The planner connects the investor's personal circumstances with the appropriate investment strategy and helps the investor remain aligned with that strategy.
I often put it this way:
“The job of a fund manager is to manage the fund and pursue its investment objective. The job of a financial planner is to help the client stay invested appropriately so that the client can actually realise the benefits of the strategy.”
My colleagues sometimes ask me:
“What if someone takes our advice once and doesn't come back for recurring advice?”
My counter is simple:
Making the plan and selecting appropriate products may account for only 5% of the overall strategy. Staying with the plan—with proper guidance and behavioural discipline—is the other 95%.
The biggest value of a financial planner is therefore not necessarily in predicting the next winner.
It is in helping clients avoid their own worst financial decisions.
At Naveen Rego Capital, a fee-only wealth management firm and non-individual SEBI Registered Investment Adviser, we believe strongly in the spirit of Behavioural Coaching.
Our entire structure is designed around helping clients understand their financial plan, implement it and, most importantly, stay committed to it through different market cycles and stages of life.
Buying and selling a financial product can be exciting.
But real wealth is often created by something much less exciting:
Staying invested. Staying disciplined. And waiting.
Especially during troubled times.
If you have missed any of our previous articles, please visit https://naveenrego.com/blog-grid.php?aW5pdGlhdGl2ZXNfdHlwZV9pZA=MQ
Happy Financial Planning!
Naveen Julian Rego – CFP®
MD & Principal Officer
Naveen Rego Capital
SEBI Registered Investment Adviser
Reg No: INA000019211
BSE Enlistment No: 2178
Disclaimers:
- Investment in the securities market is subject to market risks. Read all related documents before investing.
- Registration granted by SEBI, enlistment as IA with Exchange, and certification from National Institute of Securities Market (NISM) in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.
- Financial products recommended by us that are under the jurisdiction of other regulators are beyond the scope of SEBI’s grievance redressal mechanism.
