Martin Lee @ Sg
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My Money – Financial Needs Analysis

“My Money”, is a financial literacy programme with the objective of enabling consumers to be more informed and responsible investors.

It consists of a series of quarterly investor education seminars organized by SIAS in collaboration with MoneySENSE and The Association of Banks in Singapore (ABS). Through these seminars, SIAS hopes to help investors understand the investment products that are suitable for their needs and match their risk profile to the correct products.

I will be writing a series of posts covering some of the past seminars.

In one seminar, Mr Michael Tan from ABS spoke about Financial Needs Analysis.

financial-needs-analysisFinancial Needs Analysis (FNA) is a process where financial institutions are required to follow certain guidelines to understand clients’ needs and then provide certain recommendations to suit those needs. The whole process is supposed to be client-centric.

The FNA form usually asks clients for:

  • Personal data – ensuring they have the correct data for clients and financial institutions to make the correct decisions.
  • Cash flow – looking out for clients networth to make sure that the client’s networth would support the investments they wish to make.
  • Risk profile – containing a list of questions asking opinions and views such as time horizon for particular investments. Usually there are 4 to 5 categories which a client would be assigned to, such as conservative or passive investor.
  • Financial needs

Based on the information collected, a financial adviser would be able to introduce products to suit the various needs of clients including:

  • Protection needs
  • Wealth accumulation needs
  • Retirement needs
  • Education needs

In order for a financial adviser to provide the correct advice, clients should provide full and accurate information. Inaccurate information may lead to:

  • Wrong products being short-listed and financial goals/objectives not being met
  • Incorrect risks being assumed by the clients
  • Not all clients interests are adequately addressed
  • Future disputes between clients and banks

For example, should a client declare that he or she is an aggressive investor when in reality the client is a conservative investor, a product that does not suit the investor’s needs might be introduced based on the information declared. This tends to happen at market extremes. When the market is a on bull run, everyone suddenly becomes an aggressive investor whereas when the market is on a bear run, everyone turns conservative.

FNA is a nice concept to benefit clients if it is correctly applied. Ironically, sometimes, it ends up becoming a tool by which financial institutions protect themselves from future lawsuits or claims from clients.

Also, one wonders how FNA is correctly applied in those road shows that entice you to purchase a certain insurance or investment products so as to get a free gift.

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