“With the rising investor needs and complex financial products, there is a strong requirement for a need-based holistic advice which can be provided by financial planners to the investors”, said Ranjeet Mudholkar, CFP, vice chairman & CEO, Financial Planning Standards Board (FPSB) India.
FPSB India enthralled a packed audience at the Colonial Hall, The Club, in Andheri, Mumbai. The full-day seminar attracted audience from Satara, Pune and Nashik. It delved into a complete range ofissues related to the finance industry such the need and role of financial planners, regulatory framework, declining number of investors in the stock market, trends in financial planning, etc. The seminar was addressed by a host of experts from the finance industry including Rohit Bhuta, CEO, Religare Macquarie Wealth Management, G Ramachandran, head global research group, ICICI Bank, Arun Thukral, senior-VP, Axis Bank, Dharmendra Satpathy, VP and head-marketing, TATA Asset Management and Jaydeep Kashikar, CFP, director, Brain Point Investment Centre.
Speaking at the seminar on the “Future of Careers in Financial Planning in India”, Mr Mudholkar said, “Certified financial planner (CFP) certification offers a promising career across the world. The role of financial planners is to meet the financial goals of the investors. A lot of corporate organisation and financial firms are realising the importance of CFP course.Apart from working in the financial sector, financial advisors can also develop a successful fee-based practice system.”
Elaborating on the urgent need of financial planners in India, Mr Mudholkar cited the example of a study by CareerCast.com—a career website—which said that the job of a financial planner is the fifth-best job in the market. The study conducted in the US in 2011, said that not only do financial planners enjoy relatively high pay and enviable job security, they also have considerably lower stress levels.
Mr Mudholkar added that, in India 25,000+ candidates have registered with FPSB India for CFP certification and 14,000 to 15,000 has passed one or more modules of the five modules of CFP. Currently, there are3,500+ CFPs in India. Thus, financial professionals are now more important than ever when it comes to their investors’ plans, futures and general success.
Maninder Cheema, deputy general manager, SEBI (Securities and Exchange Board of India) pointed out that out of 1.2 billion+ population of India, only 20 million people have demat accounts. Just 10% of the Indian population invests in stocks, while only 20% of the insurable population has insurance and pension products are very few. These meager figures surely highlight the importance of financial planning services in India.
Ms Cheema further added, “Indians are good savers but poor investors. Therefore, financial professionals serve as a channel between saving and investment for consumers. However, financial planning service in India is still at a nascent stage.” Suitable advice and risk profiling of savers are the two important aspects, which planners need to take care of. They should not recommend financial products which over high commissions and low returns.
Speaking about risk profiling, Ms Cheema said that risk profiling is the assessment of ability of investors to absorb loss. It isbased on the cost of living, income, current needs, etc. It is very important for a CFP to understand the risk profile of the investors before advising them for a particular product. Only if an investor has the capacity to lose higher,then risky products should be suggested.
“Some financial planners recommend their investors to invest in large cap stocks saying that they are low risk products. However,this is not true. Low risk products refer to debt investment. It is essential that substantial part of investment should go into low risk products, i.e. debt investment,” added Ms Cheema. Financial products should also be suggested depending on the life stage of a person. For instance, a 75-year old person should not be guided to make huge investments in equity. Also, a person with no dependents should not be sold an endowment policy. Planners need to ensure that the right investment option is suggested to the investors. Financial planners need to comprehend the income level and risk appetite of the investors and not give suggestions to seek high commissions or meet sales targets.
There is a strong need for pension market in India to grow. Every individual should invest in pension. Ms Cheema gave examples of sales phone call, where advisors wanted her to buy credit cards, insurance policies or open bank accounts. But she didn’t receive any call asking her to invest in mutual funds, which is highly important for investors. Around 40% of retail investment in mutual funds has been accounted by IFAs (independent financial advisors). But the retail participation is still low. It is not that people can only get high returns by investing in gold and real estate; even financial products offer high return. Also, investment is not one-time transaction. Investors need to invest regularly. CFPs need to build trust among their clients, it is only then that they can prosper and the industry can flourish.
The responsibility of financial planners is to“convert savers in investors”, said DG Kale, general manager, Reserve Bank of India (RBI). He added that instrument, institution, infrastructure and investor are the four ‘Is’ of financial planning. The regulator takes care of the first three, thinking that three ‘Is’ will benefit the investor. The role of a financial planner is to educate investors about products. Financial planning is also a service industry. However, it is difficult to benchmark its performance.It is only the feedback provided by investors based on the trust created by CFPs that will motivate investors to approach planners. Mr Kale also added that it is the knowledge, skill and attitude of financial planners that will help them gain more clients.