There are charges for every investment and service. The same way, a financial planner must be paid for services provided.
To achieve your financial goals through investing, you need professional guidance to keep you on track for accomplishing your goal by helping you choose the best investment strategy. For this, a professional mutual fund advisor is your best bet.
It is amazing to hear people say that one should not trust advisers because they only work for money. I wondered if wedding planners or brokers, through whom they invested in property, did not work for money or get fees for the services provided? Even when one buys gold jewellery there are charges like wastage and making, which can sometimes work out to be even 20% of the overall value. Why does no one questions the jeweller on the high margins? I doubt wedding planners work at less than 10% margin.
Somehow, people are willing to pay fees in some form for almost everything they buy—including groceries, movie tickets (convenience fees of 10%) and flight tickets (convenience fees of 3%)—but are not willing to pay for financial advice that will help them manage the most important asset they own, their money. There are many reasons why people don’t want to pay financial advisory fees:
(a) They feel that they don’t have enough money to be managed by an advisor,
(b) They are confused and not sure about what the advisor is recommending,
(c) They don’t know where to cross-verify what the advisor is saying, and
(d) Given that most individuals were investing in traditional instruments, they don’t see the need for an advisor.
The main issue, however, is that only a few have made market-related investments and have little understanding of the same. Most people do not know how to assess the suitability of a financial product for their portfolio and neither do they know what are their portfolio returns.
Though many believe they are planning their finances, seldom do people really create a formal financial plan or even execute the same.
It is seen that for most participants, financial planning is about choosing instruments based on what friends are investing in or comparing fund recommendations on a couple of websites and choosing the common suggested funds on these sites. Nowhere, there is a structured approach to planning investments.
Given that returns on traditional investments are no longer attractive and market-linked instruments are the only option to beat inflation, financial planning has become even more important. Hence, people need to change their attitude towards financial advisors.
Identifying a financial advisor who will suit you is not a very difficult task. There are advisors who work on commissions and those who work on fees only. Advisors could be from banks, financial institutions or be functioning independently. Any established, known and reliable financial advisor is the best option as he/she is in the business and hence come with more stability and optimal advice. Fees between 0.5% and 1.5%—depending on the asset class being invested into—should be reasonable. ‘Fee only’ financial planners are preferable. One should also clearly ask the advisor how he/she is getting paid. No one works for free. If they are not charging fees, then it is built into the product being bought. If that is the case, ask the advisor how much goes towards commissions.
It is once again reiterated that it's better to pay meagre consultancy fees to financial advisor than to suffer losses on your Investments due to sheer ignorance. Imagine, your corpus of Rs 1 crore giving you only 5-6% safe post tax returns than giving you more than 8% nearly safe returns and 14-15% volatile returns of equity market. You will loose 2-3 lakhs every year even for safe returns . It's better to pay 0.5% and earn 3-4% more. Choice is yours.
Finally, before starting a relationship with an advisor, it is important for individuals to be informed investors. For this, they would need to spend time educating themselves on personal finance.
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