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The Case

When the Union Government announced the UDAN initiative 2 years ago to help connect under-served airports, little did Uma Iyer realize how profoundly it was going to impact her life.

Uma (now 46 years) and her husband Ramesh Iyer (50) have been living in Chennai since their marriage 23 years ago. Uma teaches English (IGCSE/IB) at a prestigious international school and Ramesh is Vice President – Manufacturing at a mid-sized privately owned auto components company. Their daughter Shruti (20) went to New Zealand 2 years ago for her undergrad studies and their son Sekhar (18) is scheduled to fly out next month, also to New Zealand, to commence his 3 year undergrad program.

All was proceeding smoothly in Uma’s world until the UDAN scheme brought in strong air connectivity to the city of Salem (TN) from Chennai and Bangalore. Salem is 20 kms from Ramesh’s hometown, a picturesque village surrounded by hills. Ramesh has a 25 acre ancestral farm bordered on one side by a beautiful river – a truly idyllic spot which Ramesh always dreamt of retiring to when he hung up his boots. Advent of strong air connectivity to Chennai and Bangalore suddenly meant that a 5-6 hour car journey to his village from both metros became a 45 minute plane ride to Salem followed by a half hour taxi ride to his farm. Great news – except that it got Ramesh thinking suddenly very differently.

Over the last 18 months, he has been obsessed with setting up an eco-tourism venture – an eco-friendly resort in his 25 acre farm – complete with renewable energy, bio-fuels, organic farms, eco-friendly construction – the works. Great accessibility from both metros to his picturesque farm was just too good a tourism opportunity for him to let pass. He saw this project as many things – a chance to do something truly exciting, to develop his beloved farm into something much bigger, to become his own boss finally, to teach city people the importance of sustainable living through his eco-tourism venture, to make big money too down the road – in short, to be happy, fulfilled, to contribute to society while becoming a successful entrepreneur.

Ramesh had done his homework well on the resort as well as on financing it. He managed to get in touch with a tourism-focused PE fund whose manager went on a trip with Ramesh to the village and came back suitably impressed with the potential. They would not need to dip into their nest-egg to fund his dreams – it looked like his sweat equity and land coupled with the PE’s funds could get the resort up and running. Ramesh had carved out a role for Uma as well – to talk to all international schools in Chennai and Bangalore, persuade them to send batches of school kids on field trips to the resort, where Uma would teach them the importance of sustainable living through an experiential learning format. Uma had to admit that the idea seemed quite appealing. Now that Sekhar was packing his bags and leaving for NZ, Ramesh was ready to pack his bags and head to Salem by the next available flight!

Uma was happy to support her husband’s dreams – but only after she had secured her family’s financial futures. His entrepreneurial ambitions would mean immediate loss of income for both of them, at a time when spending on both children would be at the peak. Shruti had 1 more year of undergrad studies left while Sekhar was just beginning his first of 3 years. Each year for each child cost them Rs. 25 lakhs in tuition and boarding. Then there was the issue of post-grad studies. Would the children opt to work for a couple of years and then go for post-grad or would they go ahead with back-to-back under and post-grad? Would they lean on the parents for the entire cost of post-grad or manage to get some scholarships? Fully parent funded post-grad meant Rs. 40 lakhs per child per year for 2 years each. And then of course was the issue of their marriage – when, where and what cost were imponderables at this stage, as there was every likelihood that both the children might opt to continue living in New Zealand and build their careers and families there – or might want to return home – who knows?

Uma figured that much of the big spending period would be behind them 5-6 years from now. Why not pursue your passion after we have settled the children into their lives, she tried to reason with Ramesh. He would still be only 55 in 5 years – not too old to take up his pet project. But these 5 years of steady earning can mean a big deal to securing their finances, especially when both would have to give up their jobs in pursuit of his entrepreneurial dream.

The Iyers have been accumulating savings in a portfolio of mutual funds which is worth around Rs. 3 crores today – about 60% in equity and 40% in debt. They own a 3 bedroom house in Chennai worth around Rs. 2.5 crores and have recently completed all EMIs to become debt free. The other significant asset is the farm and its farmhouse, which is valued currently around Rs. 3 crores. Ramesh’s monthly take-home pay after tax and deductions is around Rs. 7.5 lakhs while Uma brings in around Rs. 1.5 lakh after taxes per month. There isn’t much of a bonus kitty in their jobs – what they pull in is mostly spent on annual vacations for the family, which is around Rs. 10-12 lakhs for a 3 week long vacation. Monthly expenses for the couple are to the tune of Rs. 1.5 lakh per month, not counting children’s education and boarding expenses. They are presently able to comfortably afford the Rs. 50 lakh annual outflow to fund both their kids’ overseas education, and then save some to contribute towards their retirement kitty – all of which Uma fears will go up in smoke if they quit their jobs now to dive into the resort project. They have no insurance policies of any kind, except for group health and term covers as part of Ramesh’s perquisites from his job.

Ramesh is very keen to get started with his project, now that it has been independently vetted by a PE manager who has indicated support for the venture. With both kids abroad, there are no family compulsions to remain in Chennai any longer, he feels. If he takes early retirement, he will get a PF kitty of Rs. 1.5 crore and monthly pension of Rs. 55,000 for life from the company’s superannuation scheme. Ramesh believes the portfolio is adequate for funding his commitments towards his childrens’ undergrad fees and reasonable weddings for them in India, which he believes should cost around Rs. 20 lakhs each, today. He believes Shruti and Sekhar must stand on their own feet for their post-grad studies and find ways to self-fund – it will make them stronger and more independent, he believes. He also believes the Chennai house is anyway available for monetizing, should the need arise. Uma disagrees on both counts – on not helping the children at all with their post-grad aspirations and with selling off their Chennai house to augment their investment corpus. What if the project does not take off and they have to return to Chennai in 2-3 years? At least she can pick up a teaching job again and he can look for some consultancy assignments. In their village, it is either the resort or complete retirement with a rapidly eroding kitty. And, since the farm (minus farmhouse) was being contributed by the promoters into the resort business by way of equity, if the resort loses money big time, the farm would have to be sold to pay off debts – which means no farm, no Chennai house – just a farmhouse in a village near a small city called Salem: certainly not Uma’s idea of an ideal retirement!

Ramesh on the other hand tries to make her look at the upside – a back of the envelope calculation with his PE friend suggests they can get to a Rs. 10 lakh post tax monthly net inflow for themselves from their resort business within 3 years of commencement, and then move onto much more over time. Not to speak of the valuation that a successful resort will add to their net worth. He believes he has a real shot at moving from mass affluent to seriously affluent.

Time has come to take a decision, now that Sekhar’s move to NZ is just round the corner. Ramesh is itching to put in his papers and dive into the project, while Uma approaches each passing day with increasing anxiety, which is now causing considerable stress in the otherwise tranquil Iyer household.

You are called in as a trusted advisor and friend, to help the family make a sensible choice – one that strikes a fair balance between conflicting opinions on the way forward. What advice will you give the Iyers and why? Please support your recommendations with plans and numbers where appropriate. Please be aware that beyond numbers, there are conflicting emotions and aspirations that need to be sensitively handled.

Next steps

• When drafting your response to this case study, please remember to address three aspects: what will you advise, why will you advise this and how will you advise them.
• Here is the evaluation matrix that our jury will use to evaluate your responses - please go through the parameters as well as weightages before drafting your response:
  
  
• Before drafting your response, you may wish to peruse previous years’ cases and the winning responses:
  Wise Advice Case Competition 2018: Click Here
  Wise Advice Case Competition 2017: Click Here
  Wise Advice Case Competition 2016: Click Here
• Please mention the following details in the covering mail to your response: Name, Firm name, ARN/RIA No, City, Email id, Mobile number.
• All the above details must be provided in your covering email only. Your identity should not be disclosed in the pdf/doc files and other attachments you may append to your actual response to this case study. The jury would like to evaluate your responses without any name bias potentially creeping in.
• The Wise Advice case competition is open to all individuals in the financial intermediation business - distributors, advisors, wealth managers, employees of financial planning and wealth management firms. There is no restriction on number of individuals who can participate from the same firm.
• Responses can be sent in doc/pdf files with supporting excel sheets if you desire. You can also embed excel workings into the doc/pdf file.
• There is no word limit - but you must understand as a wise advisor, that you need to strike a good balance between brevity and verbosity. How you present your advice is as important as what you present - please remember you are dealing with a family that needs guidance to navigate through differences of opinions to arrive at workable solutions.
• Winners will be awarded with Wise Advisor trophies at the 10th annual Wealth Forum Platinum Circle Advisors Conference on Aug 29 and 30, 2019. Your winning advice will be shared with conference participants and will also be featured in a special e-book that will be published for the 2019 edition of the Wise Advice Case Competition.
• Winners will have a huge feather in their cap to present to clients and prospects - having been adjudged the among the wisest advisors in India, by the advisory fraternity, in India's most challenging competition for financial advisors!

Send your responses
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no later than 30th July 2019.

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Happy advising! May the Wisest win!

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