20-hour Customized Process. Not the 5-hour Robo++ Process

  • The 5-hour Robo++ Process is the prevalent model in India
    • The 5-hour Robo++ Process provides almost the same plan to all clients, just like a Robo-Adviser does
    • Additionally the Robo++ Process provides the client with a couple of hours of interaction with the RIA to clarify some aspects which are unclear 
    • The Robo++ Process typically requires the RIA to put in 5 hours of effort during the first year of engagement
  • I follow a 20-hour Customized Process with each client
    • 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
    • I co-created the Customized Process in India along with one other Fee-Only (Advice-Only) RIA 
      • The 15-20 hour Customized Process is similar to the approach of best Fee-Only (Advice-Only) RIAs in the US, where financial planning is far more evolved
    • The Customized Process in India typically requires the RIA to put in 15-20 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
      • And this article in MoneyControl provides a bigger-picture illustration of the Customized Process
      • My process involves a minimum of 7 hours of discussion (7 calls of 1 hour each, spread over 1-4 months). Hence if it is not possible for you to dedicate that much of time, then this approach is not a good fit for you

Risk-averse 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 (relevant article)
    • Simplicity: The entire core of the retirement planning calculation should be simple enough to do on the back of an envelope (relevant article in Mint)
    • 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)

Decisions

  • I advise clients and occasionally, where critical, I 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 with existing clients is over pre-scheduled WhatsApp / Skype audio calls else then, a one-time WhatsApp / Skype video call (typically, Monday to Saturday, 9am to 8pm)
  • The secondary mode of discussion is over email
  • I do not meet nor do video calls with potential clients

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