Pay for Financial Advice, But Insist on Direct Mutual Fund Plans

I see more and more people wanting to approach financial planners. Quite frankly I don't see this as a good sign. Simply because choosing a financial planner is harder than doing it yourself.  In this post, I would like to discuss a simple way to figure out the intentions of the financial planner you had approached.

Many ask me if Mr/Ms. XYZ is a fee-only financial planner (gets money only for advice) or fee-based planner (gets money for advice and from product commissions either directly or indirectly via a family member).

They ask me why Mr. ABC a popular blogger is not on my list of fee-only financial planners.  Financial planners want their names to be included in the list.

Why is my list of fee-only financial planners so short?

Seven out of 10 names in that list never distributed any financial product.  So they were not affected by the SEBI ruling that anyone providing investment advice (including distributors) must be registered with SEBI. This is because SEBI suddenly realized that investment advisers have fiduciary obligations. In a country where products sells only because of commissions, this move is only about 60 years old!

So many in financial services have ignored these regulations. Making it tough on investors to separate the wheat from the chaff.

I knew seven of them more than two years ago but did not publish their names because I was debating about this. When I took a stand, I decided to add names only when I was sure of their credentials with the help of trust worthly references. This is not always possible. So I am not eager to add more names.

If you contact any of the 10 people in my list, you need to pay only for the financial plan and investment advice. You are free to invest wherever you want.

If you wish to consult a financial planner who is not on this list, but would like to find out how he operates, tell him the following:

"I will pay for the financial plan creation and investment advice and invest in direct mutual fund plans".

Planners Response A:  "If you do that (invest in direct mutual fund plans), I cannot track the performance of your mutual funds, because I will not get 'feeds' ( a fancy word for account statement) from the AMC. So I suggest your invest 'via' me in regular mutual funds or you can invest via ABC firm who are 'well known' to me".

In this case:  Say goodbye. This person is trying to earn from commissions in addition to financial advice.  The legality of this can be debated endlessly. SEBI  is toothless in this matter. So forget the legality. The point is, why should you pay the person twice? Any financial planner who states they cannot advice without 'AMC feed' is trying to con you. Such people are displaying their incompetence by saying such stupid things.

Planners Response B: "Go ahead and invest in direct mutual funds plans. Please note that if you wish to review the performance of your financial plan, I need to have access to all the investments you made and their current value".

In this case: This is a fair request.  Discuss more with the person about fees, and check if you are comfortable working with them. If you are comfortable, and if the fee is reasonable, you have got yourself a financial planner. Set up an account with portals like Value Reasearch to track your direct mutual fund investments. At the time of financial plan review, print out the summary of investments page and discuss with your planner. Or you can email it to them.

That is all there is to it. Easy peasy lemon squeezy!

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15 thoughts on “Pay for Financial Advice, But Insist on Direct Mutual Fund Plans

  1. paresh

    Sebi should allocate some code like ARN to fee only planners. Investment come from such code should go into direct plans and planners can be authored to get clients data.

    Reply
  2. paresh

    Sebi should allocate some code like ARN to fee only planners. Investment come from such code should go into direct plans and planners can be authored to get clients data.

    Reply
  3. Anand Doctor

    Agree with Paresh. Thisnis real problem. I have many clients on fee only basis. The lack of reverse feeds from AMCs forces me to do things manually for these clients.
    The reports available as distributor can be easily plugged into Financial Planning, CRM and backoffice softwares. Makes it easy for me as well as my clients to track things. Not so for the reports one gets as an investor.
    This problem is created because except Quantum, no other AMC is ready to share reverse feeds for direct plan clients with their advisors/authorised persons.

    Reply
  4. Anand Doctor

    Agree with Paresh. Thisnis real problem. I have many clients on fee only basis. The lack of reverse feeds from AMCs forces me to do things manually for these clients.
    The reports available as distributor can be easily plugged into Financial Planning, CRM and backoffice softwares. Makes it easy for me as well as my clients to track things. Not so for the reports one gets as an investor.
    This problem is created because except Quantum, no other AMC is ready to share reverse feeds for direct plan clients with their advisors/authorised persons.

    Reply
  5. Milind

    I would request to update the fee only planners list as some of them I know may be fee based planners distributing products in the name of their relatives.

    Reply
  6. sherwin blake

    Practical discussion - I am thankful for the insight . Does anyone know where my company could find a template CA ICWA-030 document to work with ?

    Reply

Do let us know what you think about the article