It is human nature to procure good things at the least price. And if it’s free, you just made your day ! When it comes to financial advice, investors look unbelievingly if you say they will be charged for advice. Financial advice has always been free in India and it takes time for investors to warm up to the idea of paid financial services.
The pitfalls of free financial advice are many. Let’s see how in the long run it benefits you, if at all !
Investors have had their financial planning done at the hands of relationship managers from banks, life advisors of insurance companies, tax consultants and even brokers from brokerage houses. All these have come for free.
First things first, there is nothing free in this world.
Relations managers have targets to meet each and every month and will sell products that will make them meet their targets; life advisors or insurance agents will sell insurance products that will fetch them the most commissions; stock analysts will ask you to buy and sell heavily wherein each transaction will fetch them commissions.
Everyone has a target to meet and no one is offering advice that is free. There are hidden costs behind the free advice.
Another important thing to keep in mind is that these professionals do not have a holistic picture of your financial disposition and so do not recommend products based on that. Now that is a blunder. Since all of them sell products to you randomly, over a period of time you are bloating at the seams with piles of insurance polices that you don’t need; innumerable stocks that might not be good for your risk taking ability and unwanted mutual funds that were sold during their NFOs.
Part of the problem stems from the fact that each and every one of the above mentioned professionals call themselves wealth advisors or financial planners. This concept of “I-can-be-your-planner” has been so rampantly used or misused that the investor is now confused as to who exactly is the right financial planner. And in this confusion, when he is asked to pay for advice by the right planner, he smirks as he thinks he has many who offer free advice !
Free financial advice often ends in selling inefficient products to the investor which he does not need.
You are sold an insurance policy with the question “How much premium can you pay ?” as against “How much insurance do you need ?”.
Imagine, you are sold a ULIP for your children’s education and marriage and another one for your retirement. There is nothing wrong with this product per se, but there could be better products in the market. Do you really need so many insurance policies ?
Being bundled with bad products means the investor is losing a chance to make more money in the long run. He is also losing time to invest in the right products and his goal based investing concept is not in line with his asset allocation.
The power of compounding works best when you start early so imagine what lost time might mean for you.
The problem with free advice is that none of it takes into account your risk taking capacity; none of them think on how many stocks and how many insurance policies you should have; none of them know how your money is spread across which sectors and whether it is well diversified – actually, none of the advice is actually free !
Opt for paid advice
Think for a moment. You pay your doctor fees for the drugs he prescribes for you; you pay your lawyer fees for talking to you, then why would you not want to pay your financial planner his fees to make your financial life a better one for you ?
Firstly, investors need to understand who in the financial world does what and why. They need to ask why is advice being offered free of cost.
A little clarity from the regulators will also help. Our Indian regulators haven’t been advertising the Certified Financial Planner profession very strongly. This is the only coveted and qualified tag in India that can offer financial advice that benefits the investors. And yes, it comes with a fee !
Remember that you will be much better off financially if you were to opt for paid advice. If it needs a mindset change at your end, do it. It’s better to rest in peace with the right paid advice than to be miserable with free ones.