First, set your expectations right, Clients come later!

Different experts have different views to - What exactly is financial planning about? Here, I take the courage to pen mine. The idea comes from the fact that I am an investor first. The base is and always has been, ‘How would I benefit if I were the client/investor?’

We as professionals thrive to achieve accuracy on our financial plans. How could our plans be accurate? Consider this, we use assumptions to build financial plans. Assumptions that are distant from actual numbers at all times. 

Actual numbers might be 7.47 % & 14.32 Years! But, our assumptions would be 7.00 % & 15.00 years. Now consider a difference of 0.47% over 14.32 Years. And consider the shortfall for assuming 0.68 Year more (to goal). Of course, the difference will be large. Let us think of all the assumptions now. And let us think of the total difference that all these assumptions will make. Think of inflation rates, or return rates or time to achieve goal. Or the myth that SIP always delivers better returns than lumpsum. The list goes on...

So am I suggesting that we get more diligent with our assumptions? Absolutely not. Consider the timelines we plan for. Being more diligent might be beyond human capacities and possibilities. So now you’d ask, should we rely on technology. We’ve burnt fingers at that already, isn’t it? So what’s the solution then, you might wonder. Our job is to service clients, technology is just an aid. Let’s understand with an analogy.

An Airplane has to take off and land in direction opposite to flow of winds. If the winds are blowing from North to South, the Airplane should take off from South to North. It is the same for landing too. This is the logic – the winds have to get under the Airplane to help the pilot lift the plane and take off. While landing, the winds blowing opposite help the pilot in braking the speed. It gets risky for the pilots to take off or land in the wind direction. With that knowledge, let’s understand a flight’s journey. We’ll keep the direction of winds as North to South for the entire example.

Consider a flight from Mumbai to Bengaluru. Though the pilot wants to travel South, he must take off from South to North. After taking off, the pilot will make a U-turn to start travelling South. That is the first course correction after taking off. The air distance between Mumbai & Bengaluru is 842 Kilometres. Of course, there are course corrections during the flight as well. Let us skip making an attempt to count the number of course corrections over 842 Kilometres. For landing, the pilot has one more course correction. Fly south of the runway, make a U-turn and land on the runway from South to North (opposite to wind direction). Let’s get back to business now (pun intended).

Generally speaking, we financial planners start to plan (take off) in a certain fashion (may be in opposite direction). At the same time, even the client is not sure of what he expects from the plan. It takes a while for the client to figure that (destination is not precise). Additionally, there is complexity that assumptions create. How should our financial plans be? Should we expect them to be accurate (on course)?

Carl Richards summed it up very well on his trip to India in year 2017. I managed to attend his evening talk at Rise Mumbai. Here’s what he had to say on Financial Planning:

“The only truth that we know about financial planning is that all our financial plans are wrong. A financial plan is like a business plan. All one could measure is that I s*ck a little less today than I did last year.”

His words echo in my head even today. That’s how strong a message that was. It has stayed with me ever since. So what do financial plans and financial goals do anyway?

Our role is to manage Investors and not the Investments. Let’s accept – Investment Management is a different ball game altogether.

Coming to Investor management. No wonder that the concept of behavioural finance is of prime importance here. When we refer to behaviour, the first step should be - ‘Setting the expectations right’. Expectations apply to both - Financial Planners & Clients. If all our Financial Plans are wrong, what should we expect them to do? 

Below is a quote that sums up the purpose to financial planning well:

“I’ve missed every goal I’ve ever set. Goals are not necessarily set to be met. They are set to direct your actions and attention. That’s because you’ll be further ahead than you would have been, if you would have not set your goal.”

- Anonymous

And so, how about we set our expectations first? Shift expectations from building accurate plans to helping clients find their right direction.

We are the pilots. Our passengers are not sure about their destination (at the start). We cannot stay on the course (read accurate assumptions) all the while. That, even with the help of GPS (read technology). So let’s do an exercise…

Take a pause and reflect on few clients that you service. Isn’t it true, their life is much more sorted now than what it used to be? They are at ease because their financial life is now organized (and not scattered all over). They have a direction for their finances and life. If they have a direction then we will know the destination soon. These are finer aspects to financial planning, that we tend to take for granted.

So should we worry too much about assumptions & accuracy? Or should we focus on:

A.    Help clients’ find their right direction

B.    Get them started with financial plans

C.    Ensure timely course corrections (reviews)

D.    Help them reach their goals (destination)

When we become too focused on numbers and accuracy, we tend to forget the finer aspects of our services. Apparently, those aspects also happen to be more important. Especially now, with the commissions taking cut & fee-based advisory coming to fore gradually. So here's the gist.

Do we have correct expectations from ourselves? Or are we too caught up keeping the numbers accurate? If yes (to numbers), do we still expect clients to have the right expectations from our services? Or it is obvious they'll focus on numbers (returns) too? I leave you with that thought to ponder upon.

Kind regards,

Milind Kohmaria

Seeker, Trainer, Entrepreneur

Milind Kohmaria is a Certified Financial Planner with over a decade of experience in Accounts & Finance combined. He is based out of Mumbai and works independently as a Trainer and Consultant. He conducts team-building workshops for organisations’ teams & association groups. He is a Network FP ProMember & part of the Core Committee that manages Financial Planners Study Circle Group, Mumbai.