Skip to main content

Should you pay for financial advice?

Yes, a good financial advisor costs money. But he takes the responsibility of ensuring your financial stability

The word 'free' has a soul-stirring universal ring. Something for nothing is music to the ears. Yet, there are no free lunches. So, the one-on-one free offer or buy-a-shampoo and get-a-soap free kind of offers have already been priced in the costs. Some of them may be genuine offers, where they may offer "something extra" by reducing their profit margins. But a promotional expense, not altruism.

It is, then, surprising that people are looking for 'free' advice, when they invest. Managing finances is a very important function. We all work to earn our money, to be able to meet goals. Then, why be callous about how to manage the money earned ? Either the person concerned should go through all the appropriate options, do a proper study of the products available and go for the one best suited for the goal in question. A lot of times, this is only on paper. Most investors are just not interested in doing this due-diligence. In fact, most do not have any specific plan to achieve goals.

Hence, in financial services, the various distributors play a role and decide what investors get to invest in. If it is an insurance agent who approaches and convinces a person, then it is an insurance product which gets sold. If it were a mutual fund advisor, the investor would have been convinced about the ability of one or the other scheme that will solve his problems. The point is, the investor is investing depending on who is approaching him and convincing him and not according to any well-thought strategy.

Most take it for granted that the financial advice and counselling is a "free" service from the advisor. But any advisor will have a vested interest in selling his product, as that is what is going to earn revenue, especially in a situation, where advisory fees are conspicuous by their absence. Hence, there will be an inherent bias in the recommendations. Also, many people buy from their friends and relatives. Here, even the rudimentary matching of client goals with appropriate options goes out of the window. Typically, in a meeting where a friend/relative is the advisor, most of the time is spent on extraneous matters and very little on discussing the product features and benefits. Even lesser time is spent on matching with goals. The client himself says in most cases - You know about us and will know if this suits us. Just tell us where to sign and you handle the rest! Proper advice can make a world of difference. But good advice may have to be paid for. Most people are unwilling to do so. They have never paid for financial advice. They have paid doctors, lawyers, architects, etc., but never a financial advisor. Without appropriate advice, one tends to make many mistakes, like getting into costly or patently inappropriate products. Such actions can really be costly for the investor -the price he would pay would most probably be far in excess of the fee which he would have paid to a advisor. Again, assuming you are willing to pay, you still need to choose a good one to advice you.

You should do due diligence before hiring one. Ask relevant questions, seek references, and importantly see if he/she is throwing numbers at you or genuinely understands your financial situation.

QUESTION HOUR

 

Ø       Does he/she understand your specific issues?

Ø       Does he/she have knowledge about the product, its benefits and costs?

Ø       Does he/she have the necessary experience. Has he/she invested in people, systems and processes?

Ø       Does he/she answer tough questions such as – Will you be paid a commission for selling this product?

Is he/she willing to provide references?

Popular posts from this blog

Equity investors should track market developments

The stock markets have been volatile over the last few days. They are in a sideways movement and trying to find the bottom after a fall of 20 percent a week ago. The market sentiments are not very positive at the moment and the recent developments are expected to dampen them further. Globally, governments and central banks are trying to cut rates and announce packages to improve business sentiments. These are some of the major developments in the markets last few month: A) Global On the global front, another large US bank went into a financial crisis. The US government took quick measures to avoid the spread negative sentiments in the markets. The US government announced a bail-out package and agreed to shoulder the losses on the bank's risky assets. China announced a large cut in interest rates and reserve ratio to boost the investor sentiments in the markets. Recently, the World Bank announced China's growth rate next year will come down to 7.5 percent. The European ...

Banks tweak ATM strategies

Unrestricted usage of third-party ATMs ends on Thursday The era of free ATM usage will come to an end on Thursday, October 15. Every transaction carried out on another bank’s ATM could cost an account holder as much as Rs 20 and withdrawals will face a limit of Rs 10,000, the Indian Bank’s Association has said in its guidelines. According to the guidelines, banks can offer savings-account holders five free thirdparty withdrawals every month —they can be charged from the sixth transaction onwards. Current account holders can be charged the fees, which ranges from Rs 18 to Rs 20, from the very first transaction. Most banks are convinced that charging current account and no-frill account customers from the word go is a good idea. It suggests that the usage of ATMs by current-account holders is price-insensitive. For others, banks have decided to frame their charges depending on the profile of the customer. For instance, HDFC Bank is allowing its salary account and premium customers an unl...

TDS Rate and Personal Account Number(PAN)

    The TDS rate doubles to 20% from 10% if you fail to mention your Personal Account Number   IF you run a glance through your pay slip, you will come across something called TDS, which is tax deduction at source. In most cases, the employer deducts this amount at the time of payment of salary itself and pays the total tax amount to the government on behalf of all the employees. If you are a self- employed or practicing professional s, you have to pay this amount yourself.    Tax deducted at source is one of the modes of income tax collection by the government. Under the income-tax laws, income tax at specified rates is required to be deducted while making certain payments.    The rate of deduction of tax at source on interest and rent payment is 10%. For salary payments, the employers deduct income tax at source on a monthly basis after computing income tax liability on estimated annual taxable income of the employee. Tax benefits on housing loan, investments, etc are consid...

Fortis Mutual Fund

Fortis Mutual Fund, a relatively new player, it is still to prove its case and define its position in the industry. In September 2004, it came onto the scene with a bang - three debt schemes, one MIP and one diversified equity scheme. And investors flocked to it. Going by the standards at that time, it had a great start in terms of garnering money. Mopping up over Rs 2,000 crore in five schemes was not bad at all. The fund house has not been too successful in the equity arena, in terms of assets. Though it has seven equity schemes, it is debt and cash funds that corner the major portion of the assets. Most of the schemes are pretty new, and the two that have been around for a while have a 3-star rating each. The last two were Fortis Sustainable Development (April 2007), which received a rather poor response, and Fortis China India (October 2007). Fortis Flexi Debt has been one of the better performing funds, after a dismal performance in 2005. It currently has a 5-star rating. None ...

Women need to plan for Retirement

Plan for Retirement Online       Higher life expectancy, lower pay and fewer work years necessitate thorough planning.   Women have raced ahead of men in various fields but, when it comes to retirement planning, they tend to lag behind. Despite saving a higher proportion of their salary, compared to men, women generally do not take retirement planning seriously. Below are some of the reasons why they should: According to the United Nations Department of Economic and Social Affairs, in India, the life expectancy of women is 69 years and, of men, it's 66 years. Due to this, a woman will need an additional `55 lakh to manage her living expenses (see table).Besides, usually, women work fewer years compared to men to take care of children and family.Further, a recent study by Korn Ferry Hay Group shows that women in India earn 18.8% less than men. Not to mention, a higher life expectancy can also mean higher medical expenses as the likelihood of health ailments such as diabetes, high...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now