Bal Nivesh Child plans: Top mistakes your clients make

Child plans: Top mistakes your clients make

Here are a few pitfalls you need to look out for and avert when you encourage your clients to invest for their kids.
Daya R Mar 15, 2017

Many of your clients want to plan for child’s future be it education, marriage or both. However, often in their enthusiasm, clients make some mistakes. Here is a list of mistakes investors tend to make:

Not accounting for cost of inflation: One of the common and recurrent mistakes done by investors is not factoring in the future cost of financial goals.

Pradeep Jain, an IFA from Ranchi says, “When we discuss the financial milestones of my clients, I give an example of educational expenses then and now. This comparison helps in explaining the rate of inflation. Only after they understand the rate of inflation do I start planning their financial goals.”

Change in social status: Pradeep points out that another factor investors often forget is that their kid’s aspirations and needs will be changing with the change in their social status.

“I try to make my clients realise that they need to keep a pace with the dynamic environment. For instance, while they plan to buy their kids an android phone, their kids might want an iPhone. We need to help our clients prepare themselves for these changes. And it is important to make sure that expenses for these desires do not hinder the contribution towards their essential goals,” he says.

Wrong product: A common problem for advisors is the client’s affinity towards a safer product. Vinod Jain of Jain Investment feels that often investors tend to go to insurance or other tested investment avenues for child planning. “I advise my clients to switch from insurance to mutual funds which will give them better returns.”

Fail to revisit goals: Ranjit Dani of Nagpur feels that advisors need to encourage their clients to keep revisiting their goals at regular intervals.

“What usually happens is clients start investing with a certain set of assumptions. For example, they might think that their kid would do engineering but by the time they realise their kid wants to study abroad or do medicine, they have fallen short of funds,” says Ranjit.

He feels that by regularly revisiting the goals, advisors can help clients take a corrective course of action sooner.

Conservative estimates: Jayant Vidwans, Mumbai-based RIA, feels that while corrective course of action can be taken, advisors must encourage their clients to take into account the maximum expenses they might incur.

“Don’t let clients give a conservative estimate. If your client says his kid would do engineering, put the alternate courses he might choose at the start, so that they are prepared to face any expenditure from the beginning. This way even if the kid ends up doing an engineering course itself, they are left with extra money. But, in case he wants to do something else they do not find it hard to bridge the gap,” he says.

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