It is quite an established fact that India has arrived on the world map. In such a growing and increasingly complex market-oriented economy such as India’s, which is experiencing increased integration with global trade and finance, the financial system is an important element in the country’s future growth trajectory.
Indians Save But Don’t Seek Financial Planning
In India, where financial awareness is almost non-existent, people here save money, but do not understand how to invest it or take care of it in the best way. Indians have been traditionally investing either by intuition or taking a friend’s or parents’ advice or for tax purposes and at times as per what is sold to them by so-called “financial advisors” like insurance or mutual fund agents or stock brokers, but hardly have they ever invested after consulting a financial planner.
To give an idea of this, let me share a few stats and facts. India’s GDP is approx $1.38 trillion. The percentage of saving is approx 30 percent of its GDP, which comes to about $0.44 trillion. Out of this big chunk of savings, nearly two thirds is invested in physical assets like gold and property. And out of the rest of financial assets, a major share goes to fixed deposits and insurance cum investment products, leaving an insignificant share for equities and mutual funds. Indians have only about $0.11 trillion in mutual funds as opposed to $1.12 trillion in fixed deposits. Compared to other developing countries like Brazil, where share of investments in mutual funds (MFs) and fixed deposits (FDs) is almost the same. Indian FD to MF ratio is only 10:1. Indians lag behind in taking part in the growth story of the country.
Let me share another set of stats that show low investment in wealth-creating assets. India has a population of 1 billion+. As opposed to such vast population, there are only about 20 million demat accounts in India and only about 50 million mutual fund folios which is actually only approximately 12.5 million mutual fund investors (assuming on an average, each investor has about 4 folios under his name). Over and above that, these equity and mutual fund investor numbers would be overlapping too, as one could be a direct equity as well as a mutual fund investor. This again highlights the low equity participation.
Much to Learn from Other Countries
India needs to learn from countries like USA, Australia, Singapore, etc. where the citizens invest only after taking proper financial advice. In the changing demographic profile and inflation trends of India, and non-existence of a social security system, the importance of planning for financial goals has increased more than ever before. Sadly, the above statistics of Indian investment culture portray a dismal picture, where the Indian investor has been misguided to invest as per the agent’s and/or manufacturer’s interests but, not as per his needs and capacities. And hence more than ever before, in India: the shouting need for qualified and specialist financial professionals who can help the investor pursue his financial goals.
CFPCM Certification Nascent But Still Needed
Due to such humongous importance and need for qualified professionals in the financial services industry, it is only advisable to get proper training for such qualifications. Certification from institutions like FPSB India and the like, gives one confidence of having desired financial planning professionals in the country.
The CERTIFIED FINANCIAL PLANNERCM certification offered by FPSB India is one such course that can match the need of the hour. A CFPCM professional cannot only cater to wealth management and financial planning needs of a high net-worth individual (HNI), but also can lead non-taxpayers to build enough wealth to fall in a tax bracket!
But CFP certification is at a nascent stage in the country. The number of HNIs in India has doubled from around 84,000 in 2009 to over 1.5 lakhs in 2011, but there hasn’t been a proportionate rise in the number of CFP professionals. Though so far in India about 25,000 candidates have enrolled for CFP certification, the number of practicing financial planners is only about 200. To match the humongous demand for financial planners, the certification course has to be more practice oriented in India.
Regulators Focused on Consumer Protection
Of late, Securities and Exchange Board of India (SEBI), the Indian capital market regulator, has also focused more on investor protection, introducing a number of regulations to empower retail investors. Recently, it has proposed a self-regulatory framework for investment advisors who offer products across asset classes. Since manufacturers are remunerating distributors, who in turn might also be receiving fees from clients, this is creating a conflict of interest. SEBI wants the distributors to either qualify themselves as agents, receiving commissions from manufacturers, or qualify as advisors receiving advisory fees from clients.
The regulator is clearly trying to make a distinction between a financial advisor and a financial planner — financial advisors, being the traditional agents who would like to work on commission basis for investing client’s money in the available basket of products they serve, and financial planners (or advisors termed in the SEBI concept paper) who would charge fees to their clients for making a full fledged financial plan according to the clients’ needs.
Financial planners basically are ‘investor’ managers and financial advisors are ‘investment’ managers. But by and large, investors are more willing to pay for investment management with its focus on beating the market, than for investor management, with its focus on examination of financial resources and goals, diagnosis of deficiencies, and financial education and care.
Due to the changing regulations, markets and investor preferences, the financial planners and advisors in India have to make sense of the patchwork of regulations, and to formulate an approach that is robust enough to withstand regulatory scrutiny and is also commercially viable along with attaining client satisfaction!