The What, Why And How Of The Stuff I Do

It has now been a little over two years since I qualified as a SEBI Registered Investment Advisor. During this time I have worked with clients varying from salaried professionals to business owners to entrepreneurs. I have had the opportunity to work with them on almost all major areas of personal finance and financial planning such as cashflow management, budgetary analysis, insurance planning, portfolio construction and management, retirement planning, estate planning and so on. The specifics of the work I have done with my clients in each of these areas differs owing to the nuanced needs of each client.

But, through all the work that I have done with my clients the fundamental principles and philosophies that I have, and continue to follow during the course of each engagement have remained the same. And it is these principles guide my actions and decisions over the course of an engagement. So today I am going to delve deeper into these principles and philosophies to provide an in depth look into the way I think, analyse, plan and execute my operations as a financial advisor and planner.

The first bit of work I focus on with each client is to conduct an asset inventory check. This basically involves taking stock of the number and value of various assets and liabilities (if any) the client has on hand when beginning the engagement. This is done in parallel with an assessment of the overall financial position of the client at the start of the engagement. This helps me draw up a basic balance sheet for each client. Any changes in the client’s assets structure that I feel would benefit the client in light of their financial situation are then suggested to the client.

My next objective is to ensure that my clients avoid potential disputes with regard to the ownership of the assets and investments they have on hand. I therefore ask my clients to work on sound financial documentation with regard to their investments and other assets as the next part of the engagement. This typically involves clients having to ensure that the client’s name on the ownership documents of their various investments and assets are exactly as they appear on their legal identification documents such as their PAN card and Aadhaar Card.

I also ask my clients to create a single, secure document (preferably electronic) where they maintain important information regarding their assets and investments such as location details, passwords, bank account numbers and so on. More on financial documentation can be found in one of my earlier articles Paperwork That’s Perfect.

All of this sets the foundation for the actual financial planning exercise to begin. To my common sense, an effective financial plan must begin with the process of setting up an effective cashflow management system. And any effective cashflow management system must allow the client to create an effective trail to understand how money currently comes in, how and where it should get parked and spent and how that ideal can be achieved. Understanding how the money comes in requires a comprehensive recognition and analysis of the various income sources that the client’s household currently enjoys.

The current saving behaviour and spending patterns of the client can be clearly understood through the preparation of a detailed expense budget. After understanding the various income sources of each of my clients, I work with them to prepare a comprehensive expense budget detailing their current annual expenses. Once the budget is prepared I analyse it and suggest measures to reduce expenses and increase the savings rate, if required.

I am of the opinion that a savings rate of 10% a month is a bare minimum that each client must ensure they meet, and anything like 30% and above is appreciable. Therefore the systems I design to help clients manage their income as it comes in is always geared towards this central objective. The specifics of the system designed for each client would differ based on the nuances of their needs. But it broadly involves segregating various portions of each month’s take home income into separate savings bank accounts. This is illustrated in the graphic that follows.

The amount in each bank account must only be used for its designated purpose. Such an approach would give clients greater control over their income and prevent unnecessary and impulsive spending. The final component of the cashflow management system would be setting up a corpus of cash and other liquid assets worth 6 to 24 months worth of the client’s monthly expenses to serve as a buffer for financial emergencies and income gaps.

Having the cashflow management system in place allows me to move on to assessing and planning the insurance needs of my clients. As far as life insurance is concerned, estimating the amount of coverage required would be heavily dependent on the Human Life Value (HLV) of the client. Human Life Value is explained in the graphic that follows.

I firmly believe that life insurance is a product that is meant to provide protection against risk. I therefore do not recommend products that combine risk coverage with a return component. This is because such products aim to provide the best of both worlds, but ultimately do neither effectively. Also, they do not justify the premiums they demand because of this. Therefore a simple term insurance policy which purely provides coverage against the risk of death would be the most viable option in my opinion.

When it comes to health insurance, most salaried employees today enjoy substantial health insurance coverage through the plans their employers offer. But since this coverage is tied to their employment, it is advisable to purchase standalone health insurance through individual and family floater insurance plans, over and above the coverage offered through employment. Naturally this is something I recommend to all my clients, even more so to those who are self employed and do not enjoy coverage from an employer.

The amount of standalone coverage would depend on prevailing healthcare costs in the region of residence of each client and any lifestyle conditions that the client or their family members may face. But what is important for me in a health insurance policy is the availability of a wide coverage network for cashless settlement and the absence of multiple restrictive clauses such as Co-Pay and room rent sub limits. More on these clauses can be found in one of my earlier articles linked here - Gun For Wealth, But Don’t Forget Health.

When constructing investment portfolios for various financial goals of clients, I always construct portfolios consisting of multiple asset classes aligned to a clear asset allocation strategy. The asset allocation strategy would differ for each goal depending on the requirements of each goal and the risk profile of the client for whom the portfolios are being constructed. For the equity portion of each portfolio I always recommend large cap index funds to clients.

The reason for doing this stems from data available in the SPIVA (S&P Indices Vs Active) India report for year end 2021, which shows that the majority of actively managed funds across all categories in India underperformed their benchmarks over the concerned 20 year period ended 31.3.2021 as studied in the report. This is reflected in the graphic that follows.

Within the large cap index fund space, I prefer to recommend funds that track the Nifty 50, since almost every major mutual fund house in India offers a Nifty 50 index fund. This ensures that there is enough competition in this space, which ensures liquidity and keeps costs competitive. Also, the Nifty 50 represents close to 67% of the Indian stock market on the basis of free float market capitalisation. So a single index fund is enough to gain exposure to a significant share of the Indian markets.

Debt mutual funds form the core of my clients' debt portfolios. Ideal debt mutual fund options for short term goals include ultra short term bond funds, liquid funds and money market funds. Gilt funds and corporate bond funds are ideal recommendations for long term goals. They are taxed at a special rate of 20% on redemption after a holding period of 3 years. All of these options represent more tax efficient options compared to traditional bank deposits for all those falling in the 20% and 30% tax slabs, which most of my clients fall into.

Constructing portfolios in this way therefore allows me to optimise returns for clients while also moderating their tax payouts. Everything that I do for my clients throughout the course of an engagement therefore has a clear objective that I hope to achieve. And I believe that such a purpose driven approach is my best chance to ensure that my clients move towards and achieve fulfilling outcomes in their endeavours to manage their money and achieve their financial goals.



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Akshay Nayak

SEBI Registered Investment Advisor and Fee Only Financial Planner based in Bangalore, India. My stories ≠ advice. Email ID :