Approach

  • My approach is relatively risk averse and conservative, and focuses on simplicity, minimizing costs and minimizing mistakes (relevant video and article)  
  • Some examples of this approach are provided below:
    • Risk averse: All of us tend to overestimate our ability to stay calm during a significant stock market crash. Ironically, the primary way to mitigate this is to accept that it will be difficult to stay calm in such a scenario (relevant article in Mint). As a result, one should limit one’s equity allocation to twice the amount that one is willing to permanently lose (relevant article in Mint)
    • Conservative: The average investment returns on one's overall net worth over one's lifetime, is much lower than most people estimate. Because of this, saving an appropriate amount each month (and year) becomes as important as investing
    • Simplicity: The entire core of the retirement planning calculation should be simple enough to do on the back of an envelope (relevant article)
    • Minimizing costs: On the whole, Indian active mutual funds do not beat the index (relevant article in Business Standard which will download as a PDF file and another article which explains the data). Hence, I recommend only low-cost index fund and index-like funds and this is similar to Warren Buffett’s advice. Most of these funds charge less than 0.20% p.a. (relevant article)
    • Minimizing mistakes: Not sufficiently diversifying one’s portfolio (between safe investments vs risky investments such as equity & real estate) is the most common mistake that one should avoid (relevant articles in MoneyControl and Business Standard)

Customized Process

  • I customize the engagement for each client
  • This is radically different from the Standardized Process which is more common in India
  • The Customized Process goes into sufficient detail with each client:
    • To identify at least one important issue that the client had not realized (e.g. that the client was taking too much investment risk) or address at least one critical question that the client has in mind (e.g. should the client retire now or later)
    • To explain the recommendation and reasoning in detail so that the client understands it and is hopefully convinced by it
    • To educate the client about critical aspects of financial planning and investing e.g. how do you calculate how much you have to save for retirement; asset allocation between equity / real estate vs. safe assets
  • The Standardized Process typically requires the RIA to put in 5 hours of effort during the first year of engagement. While the Customized Process typically requires the RIA to put in 20 hours of effort (including discussions and back-end work) during the first year of the engagement
  • The second half of this article provides an illustration of one part of the Customized Process in one particular situation

Decisions

  • I advise clients and occasionally, where critical, to try and convince a client
  • Clients take the final decision about whether or not to partially / completely accept each recommendation

Implementation

  • Clients are responsible for implementing the Financial Plan. Typically, this is done online
  • I try to guide the client through the implementation of the Financial Plan, but I do not have any direct or indirect control over the client's investments

Logistics of the Process

  • The primary mode of discussion is over pre-scheduled audio calls else then, occasionally video calls (Monday to Saturday)
  • The secondary mode of discussion is over email

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