The Hindu Business Line : `Client-financial planner relationships set to undergo transformation'

A FINANCIAL planner who abuses a client's trust should have his licence revoked, states Dr Somnath Basu, who works with the US CFP (certified financial planner) Board of Standards and serves on its steering committee for model curriculum development.

He told Business Line that client-planner relationships in this country are set to undergo a drastic transformation, now that Indians are acquiring new social and financial habits. Excerpts from an interview.

The Indian financial planning scenario is undergoing lots of changes. How do you see the situation emerging here?

A few factors that have come up lately must be considered. The Indian situation is now in a flux, the contours of traditional society are changing rapidly. Urbanisation has happened in a big way. Family structures have varied. Retirement planning, as we know it in the USA, is yet to come about in India, where planning not so long ago meant having more sons in the family. But Indians are beginning to wake up to the idea of living long after retirement. They are aware that their forefathers had suddenly found out that they had become older without financial independence. That is a distressing thought. When we think about the earlier generations, we don't want to repeat the mistakes committed by them. People now want more than simple financial control over their future.

Are there some areas that financial planners have to catch up in India?

It is true that Indian investors are getting more careful and sophisticated. But they are still falling prey to those who try to exploit them systematically. You will probably see this more in a bull market than when the trend is bearish. The point is, consumers have to be catered to by somebody. And they cannot wait forever to gain access to the most ethical planner. Hence, mistakes are creeping in. Customers, in order to check their financial health, must seek advice from the right people... `the experts' as they are often called.

How can training make a difference?

If you are referring to education of consumers, the latter is always important. You do not want to have financial worries if you can help it. The trouble is, you may be an authority on certain subject, but that may not make you an expert in managing your own financial health. The solution lies in seeking out trained planners. Trained and certified planners offer two things - competence and ethical treatment. A CFP is both competent and ethical. Let me add here that the media can play a positive role in imparting general education and raising awareness. This is a role the media played in the US when some very high-profile people became victims of bad practices.

What else can consumers have as a safeguard?

It might be advisable to have a Government agency in charge. This will have to be an organisation that serves to protect the interests of investors, especially the small individual, and ensures that there are no scams happening around them. There is such an association in the US, one that operates as a quasi-government outfit. If an investment advisor abuses a client's trust, this association can take away his or her licence. Those who are registered with it are automatically aware of the fact that violation of norms will have a crippling effect on their business. On another front, the creation of a self-regulated organisation can also help matters.

What can make financial planning a more relevant profession in India?

One of the ways of achieving this is to clarify all matters regarding fees that are payable to advisors. The other is to focus on education. It is important to start immediately. If you wait till you lose money, there may not be much to do at the end of it all. In fact, turning the entire planning process into a more critical input is an issue that is being discussed worldwide. The idea is simple: It is important to have some fundamental standards with a view to protect those who need planning. There are, of course, certain minimum standards. But given a few local issues, especially those related to taxation, not all such standards can be applied everywhere. Each nation, therefore, should follow its own standards.

As the Director - Financial Planning Programme at California Lutheran University, what are your plans?

The California Institute of Finance, which offers an MBA in financial planning, will try to establish a presence in India. The institute educates people to become a CFA and supports the cause of professional development. We hope to introduce the MBA programme in India too. Also, we have already addressed an audience on the topic of planning for retirement needs.

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