Source: IRIS (22 March 2013)

Doesn’t your doctor advise an annual medical check every year? Just to ensure things are fine, your heart still beats; and to rule out the onset of any dreaded disease.

That is exactly what an annual goal review covers in your financial plan.

Annual goal review is normally done once a year, where all the goals identified by the client and designed to accomplish by the financial planner, needs attention, and whether everything is on track for the BIG goals that are planned for.

Factors considered in the annual goal review:

1. Assumption of rates:

There are assumptions made on inflation, rate of growth of investments, real returns, percentage increase in salary 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, +- 5% change, is alright. This is done to ensure your goal is on track as per the assumptions made. If not, there would be changes needed in the targeted amount of your goal, the amount you need to save and sometimes the period of reaching the goal, if the above rates change.

2. Changes in macro economic factors affecting micro economic conditions and fundamentals:

For eg, 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 disrupt sudden 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 portfolios in equity.

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 and an average growth rate achieved 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.

3. Change in tenure of goal attainment:

For some reason, impatience though not a virtue, becomes the highlight of goal attainment in these fast times. If the duration to goal achievement is reduced by such an impatient client, one needs to invest more or add more resources to meet the targeted amount, which will change.

4. Salary and income sources:

If salary increase is on track, expenses are on track (this very often is subject to radical changes, due to change in lifestyle or new sub goals that want to be achieved, with changing circumstances), then ideally savings should also be on track! If yes, your goals are on track! Congratulations!

5. Change in networth:

Ideally one’s networth goes up every year with increase in the value of Investment Assets and Personal Assets. This is a positive on the overall financial condition.

6. Income and expenditure statement:

Income also goes up and there are various sources of income, like salary income, business income, investment income, rental income. Expenses can be categorized as Household expenses, which comprise of groceries, maintenance, mobile, petrol, which would change drastically with inflation figures, and therefore have a cascading impact on various factors like potential to save. Lifestyle expenses are also variable and change with higher outings or holidays, Dependent expenses also increase with inflation, Fixed expenses like loans and insurance premiums are also present.

7. Investment assets:

Ideally if your savings potential goes up, your investment asset sheet looks good, like investments towards, equity, debt, real estate, gold.

8. Cash flow statement:

Your Fixed and Variable income and expenditure statement would affect the Cash Flow Statement and the net disposable income available for savings.

9. 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.

10. Parameters linked to reaching goals:

E.g. sale of investments linked towards a particular goal. If certain investments are ear marked 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.

11. Change in goal amount target itself that was fixed:

This is not a good thing, to do, since there are already dynamic variables that affect this goal and changing the goal in itself would lead to decision making on feasibility of goals.

12. Creation / adding new goals by clients:

This would depend on availability of resources and affordability of incorporating the new goal. Whatever happens, you need to inform your financial planner about this change for her to restructure your resources, goals and update you on the feasibility of the same.

13. 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.

14. Change in life goal sheet and cash flows:

Changes in all the above 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. 

(Contributed by Dilshad Billimoria BBM, LUTCF CFPCM, Certified Financial Planner and Investment Advisor)