Choosing the Right Financial Planner

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With increasing in the number of Financial Instruments/New Asset Classes, their Risk-Reward Ratio and Features often confuses lots of Investors in choosing the right one.
Consequently, arises several questions to individuals & the search for their answers, whether it is a Mutual Fund Scheme or P2P Lending services or any other instrument. Such search on Google gives lots of information which further give rise to doubts or the wrong decision-making action.
Therefore, the authentic source and the right information needs to be answered with unbiasedness in the advice which can only be possible if one can hire the Right Professional.
In India, there is more than 1 Lakh of Financial Advisors (or Financial Planner or any other similar designation) who advises investors like us on:

  • Which Financial Instrument to invest in?  And why? 
  • Which Financial Instrument can actually fulfill our need?  And when? 
  • Do we require portfolio diversification or not? 
  • Which Asset class can give us multi-fold returns? and many other questions.

But still, the question on the unbiased advice exists due to the structure of the business model these advisors follow. 

Let’s understand it better with the Types of Financial Planners and the business model they follow with suggestions on such selections.

Types of Financial Planners in India

  • Fee-Only Planner
  • Commission Based Planner
  • Composite Financial Planner
Choosing the Right Financial Planner
Choosing the Right Financial Planner-Type of Advisor Chart

Fee-Only Planner: 

are the planner(s) who focuses on client-first philosophy and offer services to individuals by charging either a fixed amount or a certain percentage of the Total AUM (Asset Under Management) invested. These planners do not get any commission (Directly and Indirectly) in between any financial product/service(s), they advised.
They are always ready to acquire knowledge on the new asset class with deep research on its pros and cons before suggesting any to anyone. They believe to advise clients, only those product/service(s) which are suited to their need, budget, and risk-taking capability. Such Fee-only planners are known for the quality of advice, transparency, ethics and data confidentiality on their offered services.
In India, there not many planners who charge the only fee to the clients irrespective of the commission they would be getting if opted for the commission.

Commission Based Planner:  

known as the agent to the product/service(s). They are very popular in our country and sometimes also known as Insurance Agents, Mutual Fund Distributors(IFA/Financial Advisor, Stock Brokers, or their combinations. They are renowned for the marketing of any product/service(s) they are dealing into.
These planners mostly work on the agent-principal approach, also known as the representative of the company.
Investors mostly think that companies are paying them but in reality, they are like the insects which keep on sucking blood till the time the investor either stay invested or churned up.
These planners are easily available with all types of cost to the investor pockets than a Fee-only Planner.

Composite/Fee-Based Financial Planner: 

As the name suggests, they are the composition of Fee-Only Planners and Commission Based Planners. They are the most common and heavily marketed planners. They are also known as Insurance Agent cum Stock Brokers cum Mutual Fund Advisors. These type of Planners provide a combination of services to the investors with the help of their relationships manager (RMs) i.e. from Insurance Policy to Stock Trading to Mutual Fund Investments at a cost of Commission plus Fees. They are the most expensive planners, also called them as Fee-Based Financial Planners. They earn not only from selling highly commission based product/service(s) but also from the client as to fees. These planners are mostly big corporates like ICICI SecuritiesHDFC Securities, and other big Financial Institutions.

Here’s the type of advisors and the services offered with their pros and cons to investors in the long-term.

Comparison Table
Choosing-Right Financial Planner-Comparison Table

Conclusion

In India, when it comes to consulting, people tend to opt for Free Services. Due to which they either geared into heavy losses or extinct from the market. They need to understand and acknowledge themselves that ‘Nothing is Free, it’s the Hidden Cost‘ which is churning down their returns and other benefits.

Have a Thought,

Why there more Wealthy Stock Brokers than Wealthy Investors?

Either an investor gain or loss it’s the commission (Upfront & Trail) that makes them rich.

Choosing the Right Planner is not a difficult task but avoiding Free Advice is a Difficult task.

Pay to those who possess the knowledge & experience, not to those who are just selling and earning Commission.  

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