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Financial Planning Making the annual review work for your clients

Making the annual review work for your clients

Dilshad Billimoria of Dilzer Consultants explains the importance of annual review with your client.
Dilshad Billimoria Mar 30, 2013

Dilshad Billimoria of Dilzer Consultants explains the importance of annual review with your client.

Just to ensure things are fine, your heart still beats and to rule out the onset of any dreaded disease, doesn’t a doctor advise an annual medical check every year? The same role is played by an annual goal review in ensuring the health of your client’s financial plan.

Annual goal review is normally done once a year to ascertain whether everything is on track for the big goals that are planned for.

Factors considered in the annual goal review:                                                   

Assumption of rates: These are assumptions made on inflation, rate of growth of investments, real returns, percentage increase in salary/income every year and interest rates. The financial planner should recheck if the rates are more or less on par with what was laid out in the initial financial plan though a small deviation is acceptable. This is done to ensure your clients goals are on track as per the assumptions made. In case there has been a change in the above rates, changes would be required in the targeted amount of the goal, the amount your clients need to save and sometimes the period of reaching the goal,.

Changes in macro-economic factors affecting micro economic conditions and fundamentals: For e.g., if US dollar falls, the price of gold moves up and because of this uncertainty, gold prices soar and returns from gold exceeds other asset classes. This abrupt increase in returns of gold can last for anywhere between few days to few months.  Similarly, oil prices impact current account deficit and would impact profits of oil companies and therefore share prices of these companies would fall, impacting the equity portfolio of your client.

Change is inevitable: What is important in portfolios constructed for financial goals is to maintain an asset allocation among all instruments to ensure diversification is met at an average growth rate to meet the goals. Asset classes will move up and down and so will returns; however, asset allocation and portfolio rebalancing will ensure the average growth rate assumed in the financial plan and goal review are maintained.

Change in tenure of goal attainment: If the duration to goal achievement is reduced by an impatient client, one needs to invest more or add more resources to meet the targeted amount, which will change.

Salary and income sources: If salary increase is on track, expenses are on track (though change in lifestyle could lead to an imbalance in income-expenses equation), then ideally savings should also be on track!

Change in net worth: Ideally one’s net worth goes up every year with increase in the value of investment assets and personal assets. This is a positive on the overall financial condition.

Income and expenditure statement: Take a comprehensive look and draw up an accurate Income and expenditure statement..

Investment assets: Ideally if your client’s savings potential goes up, the investment asset sheet looks good, like investments towards, equity, debt, real estate, gold.

Cash flow statement: Your client’s fixed and variable income and expenditure statement would affect the cash flow statement and the net disposable income available for savings.

Changes in life insurance and health insurance: As investment assets go up, sometimes loans increase, and therefore, the Insurance cover taken needs to be topped up. Also, with the birth of children, health insurance should be increased.

Parameters linked to reaching goals: e.g., sale of investments linked towards a particular goal. If certain investments are earmarked towards achieving a goal as part of utilization of existing assets in goal realization, then other investments need to be mapped to meet this change or more savings need to be added to reach the goal.

Change in goal amount target: This is not a good thing to do since there are already dynamic variables that affect this goal.

Creation/Adding new goals by clients: This would depend on availability of resources and affordability of incorporating the new goal.

Change in action plan: Once the above parameters change, your action plan also changes and this is the basis for the next year’s goal review.

Change in life goal sheet and cash flows: Changes in all the above factors would impact the life goal sheet, and a good financial planner needs to check this first to decide on feasibility of goal with the impact of the above changes.


The views expressed in this article are solely of the author and do not necessarily reflect the views of Cafemutual.

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