Data gathering and analysis — CFP IFP

Comprehensive data gathering is the foundation of good planning. CFPs use structured questionnaires, financial statements, and risk-profile tools. Analysis converts this into specific recommendations.

Foundation

Data needed for comprehensive plan: Client profile: • Age, marital status, dependents • Profession, employment status • Health status • Lifestyle preferences Financial: • Monthly income (salary, business, investments) • Monthly expenses (essentials, lifestyle, irregular) • Annual cash flow (income − expenses) • Net worth (assets − liabilities) • Existing investments (mutual funds, stocks, deposits, real estate, gold) • Existing insurance (life, health, others) • Existing retirement structures (NPS, EPF, PPF) • Existing estate documents (will, POA, etc.) Goals: • Specific amounts (in current rupees) • Time horizons (years to goal) • Priority ranking (must-have vs nice-to-have) • Inflation assumption per goal Risk profile: • Risk tolerance questionnaire (1-10 scale) • Risk capacity (financial buffer to absorb losses) • Behaviour during past market events • Investment horizon Analysis converts data into: • Goal-funding gap analysis • Risk exposure assessment • Tax efficiency evaluation • Estate plan adequacy • Recommendations

Deep Dive

Cash-flow analysis: Income: • Salary: gross + after-tax + take-home • Business: variable; use trailing-12-month average • Investments: dividend + interest + capital-gain (estimated) • Other: rental, royalty, etc. Expenses: • Essentials (housing, food, utilities, transport, healthcare): 60-70% typical for middle-class • Lifestyle (dining out, entertainment, travel): 15-25% • Goals (children's education, savings): 10-20% • Irregular (annual taxes, vacations, gifts): adjusted to monthly equivalent Free cash flow = income − essential expenses − lifestyle expenses This is the "investable" amount each month. Balance sheet: Assets at fair value: • Liquid (savings, FDs) • Investments (MFs, stocks, gold) • Retirement (PPF, EPF, NPS) • Real estate (own residence, investment property) • Other (gold jewellery, vehicles) Liabilities: • Home loan, vehicle loan, personal loan, credit-card debt Net worth = Assets − Liabilities Key ratios: • Savings rate: monthly savings / monthly income (target: 20-30%) • Debt-to-income: total monthly EMI / monthly income (target: <40%) • Liquid net worth: liquid assets / monthly expenses (target: 3-6 months) • Investment ratio: investments / net worth (varies by age)

Worked example

Worked example — Mr. and Mrs. Bhargava's comprehensive analysis Clients: Mr. Bhargava (45, ₹40L salary), Mrs. Bhargava (42, ₹15L salary). Two children (15, 12). Mumbai. Cash flow: • Monthly income (combined): ₹4.6 lakh • Essentials: ₹1.5 lakh • Lifestyle: ₹80K • Goal-savings + insurance: ₹1.2 lakh • Free cash flow: ₹0.5 lakh available for adjustment Balance sheet: • Liquid assets: ₹15 lakh (FDs, savings) • Investments: ₹85 lakh (MFs) • PPF + EPF: ₹70 lakh • Real estate: ₹2.5 cr (primary residence) • Gold: ₹15 lakh • Total assets: ₹3.85 cr • Liabilities: ₹35 lakh (home loan) • Net worth: ₹3.5 cr (excl. residence) or ₹6 cr including Key ratios: • Savings rate: ₹1.2L / ₹4.6L = 26% (good) • Debt-to-income: ₹35K/₹4.6L = 7.6% (low; healthy) • Liquid: 6 months of essentials = ₹15L / 1.5L = 10 months (excellent) Goals: • Retirement at 60: ₹2.5 cr in 15 years (in today's rupees) • Children's education: ₹50L in 5 years for older + ₹50L in 8 years for younger • House upgrade: ₹50L in 7 years Gap analysis: • Retirement: trajectory ~₹4.5 cr; goal ~₹2.5 cr; on track • Education: gap ~₹40L for both children (need ₹40K/month additional SIP) • House: requires ₹50L liquidity in 7 years; allocate via debt fund Recommendations integrated: • Increase SIP by ₹40K/month for education + house savings • Maintain current allocation for retirement (on track) • Review insurance: term cover currently ₹2cr; should be ₹3.5cr+ • Update wills for both spouses • Consider parental health insurance for senior parents This kind of integrated analysis demonstrates CFP capability.

Real-world scenario

Real-world scenario — Mr. Reddy's comprehensive review Mr. Reddy, 50, business owner, complex situation: business equity, multiple investments, personal real estate, family obligations. CFP's comprehensive review: 1. Data gathering: 4-week process, multiple meetings, document review. 2. Analysis identifies: • Business value: ₹15 cr (75% of total wealth) • Liquid investments: ₹3 cr • Real estate: ₹5 cr • Outstanding business debt: ₹4 cr • Net worth: ~₹19 cr 3. Issues identified: • Concentration risk: 75% in single illiquid business • Liquidity crisis if business has down year • No business succession plan • Inadequate term + health insurance • No structured retirement planning • Estate documents outdated Recommendations: • Business: restructure for partial liquidity; succession plan with spouse and children • Personal: increase liquid investments, reduce business concentration • Insurance: ₹5 cr term + comprehensive health • Retirement: NPS + dedicated pension corpus separate from business • Estate: comprehensive will + family trust • Tax: optimise across business and personal Implementation: 18-month plan with specific milestones. 2 years later: Mr. Reddy's wealth profile dramatically improved. Concentration reduced to 50% business; personal liquidity ₹8 cr; health and term insurance comprehensive; family stability assured. This is what comprehensive CFP planning looks like in practice.

Advanced

Goal analysis: For each goal: • Future value = Current expense × (1 + inflation)^years • Required corpus = FV / sustainable withdrawal rate • Current trajectory = projected corpus from current investments • Gap = Required − Trajectory • Required additional savings/SIP to fill gap Example: Goal: Retirement at 60, ₹1 lakh monthly expense today (₹12L/year) Inflation 6% over 25 years: future expense = ₹12L × (1.06)^25 = ₹51L/year Required corpus at 4% withdrawal: ₹12.75 cr Current corpus: ₹50L Projected at 10% over 25 years: ₹50L × (1.10)^25 = ₹5.4 cr Gap: ₹12.75 cr − ₹5.4 cr = ₹7.35 cr Additional SIP needed: ₹7.35 cr / [((1.10)^25 − 1)/0.10] = ₹7.5L per year ÷ 12 = ₹62K/month If currently SIP-ing ₹30K/month, gap is ₹32K/month additional. Risk profile assessment: • Standard questionnaire: 10-15 questions about risk tolerance • Behavioural observations: how clients react to market drops • Risk capacity: emergency fund, time horizon, dependents • Combine for "appropriate risk level" classification

Regulatory references

CFP-FPSB Module 5 syllabus
SEBI IA regulations on plans

Common mistakes & pitfalls

Insufficient data gathering.
Goals stated without specific amounts.
Risk profile relied on questionnaire alone.
Recommendations not integrated across modules.
No follow-up after plan delivery.

Frequently asked

How comprehensive should data gathering be?

Very comprehensive. Skipping data: incomplete plan. Use structured questionnaire + balance sheet + cash-flow projections + goal mapping. 5-10 hours typical for HNW; 3-5 hours for retail.

How do I quantify goals?

Specific amount in current rupees + time horizon. CFP's job: project to future value, calculate required corpus. Example: "₹50 lakh for child's education in 8 years" — clear and measurable.

What if client's risk profile changes mid-plan?

Acknowledge in next review. Discuss reasons. Update IPS to match revised tolerance. Adjust allocation accordingly. Don't lock client into unsuitable allocation despite revealed preference change.

Practice questions

Click each question to reveal the answer and explanation.

Q 1

Free cash flow available for goals = income minus:

(a)All expenses
(b)Essential expenses + lifestyle
(c)Just essentials
(d)Just income tax

Correct: (b) Essential expenses + lifestyle

Free cash flow = income − essential − lifestyle expenses. The "investable" amount that goes to goals/savings.

Q 2

Healthy savings rate target is:

(a)5%
(b)10-15%
(c)20-30%
(d)50%+

Correct: (c) 20-30%

20-30% savings rate is healthy for middle-class. Below 15%: insufficient for goals. Above 50%: probably under-spending.

Q 3

Goal future value = current cost × (1 + inflation)^years where:

(a)Inflation = current CPI
(b)Inflation = goal-specific inflation rate (education, medical, general)
(c)Inflation = 0
(d)Inflation = 5% always

Correct: (b) Inflation = goal-specific inflation rate (education, medical, general)

Goal-specific inflation: education 8-10%, medical 12-14%, general 5-7%. Apply to future value calculation. Critical for accurate corpus projection.

Q 4

Risk profile combines:

(a)Just questionnaire score
(b)Risk tolerance + risk capacity + observed behaviour
(c)Income only
(d)Age only

Correct: (b) Risk tolerance + risk capacity + observed behaviour

Risk profile = stated tolerance (questionnaire) + capacity (financial buffer) + revealed behaviour (past market events). All three needed for accurate assessment.

Q 5

Liquidity ratio target for emergency fund:

(a)1 month essentials
(b)3-6 months essential expenses
(c)12 months income
(d)5 years salary

Correct: (b) 3-6 months essential expenses

Emergency fund: 3-6 months of essential expenses in liquid form. Smaller for stable employment + multiple income sources; larger for self-employed or single income.

Educational purposes only. The numbers, returns, and examples used in this lesson are illustrative. Past performance does not guarantee future results. Mutual fund and securities investments are subject to market risks. This lesson is not investment advice; for advice tailored to your circumstances, consult a SEBI-registered Investment Adviser. Read our full disclaimer.