Last Updated on November 13, 2021 at 10:02 am
Suresh asks, “I would like to consult with one of the SEBI registered fee-only financial advisors on your list. However, I am not able to decide how much fee is reasonable. Can you please write an article on this?”.
For those who are new to our community, close to a thousand readers have been working with our list of Fee-only Financial Planners over the last eight-plus years. There is no regulation or limitation on the fee of a financial advisor.
You can get holistic financial advice from Rs. 8000 onwards. There is no upper limit, and some advisors charge a fee as a percentage of the client’s assets. This means they can get a higher fee for the same recommendations from a wealthier client! That this has a built-in conflict of interest is another matter.
So instead of looking for a price range to represent a reasonable fee, we would recommend potential clients shortlist financial advisors with the following considerations:
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- The advisor should not get any commissions from any product directly or indirectly. The SEBI RIA Amendment 2020 makes it clear, but many entities in the financial space ignore it. So the advisor should be a “fee-only” advisor registered with SEBI as an investment advisor.
- The fee charged should be a flat fee and not a percentage of AUM. There are two places where such advisors are listed: Our list linked above and Fee-Only India.
- The first two filters would reduce the advisory universe to under 25 (our list has only 14). The range of fees charged by these advisors is still considerable. So we need additional filters.
We need to look for (A) client profile and service appreciation, (B) clarity of the service provided on their websites, (C) advisor profile and their display of expertise online and (D) the social proof of the advisor’s services.
A: Client profile and service appreciation This is the most crucial step in advisor selection.
- Are you looking for an advisor who will give you recommendations that you would implement no-questions-asked?
- Are you a DIY investor looking for a review of your investment choices?
- Are you a DIY investor looking to learn the basics from an advisor so that you can truly DIY in future?
- What is it that you want? Unless you are clear about this, selection will be hard, and a mismatch of expectations is possible.
Service appreciation: What does a financial planner do? Just because they are called SEBI, registered investment advisors do not mean they only provide investment advice. They help you with creating an emergency fund, provide advice on different types of insurance policies, help with debt management, advise whether you can afford to take new loans or not; help with will creation and estate management, budgeting, cash flow and of course, goal-based investing and associated investment advice.
Unless we understand what they do and what they are charging for, advisor selection will not be smooth, if not impossible.
B: Service Clarity: When you visit the financial advisor’s page, you must immediately get an idea about the service provided. Combine this with points in item A above; finding a good fit becomes easy. Here are two representative examples: insightful.in by Vikram Krishnamoorthy and vivektaru.com by Swapnil Kendhe. Ideally, as a client, I should understand the nature of the advice provided within three minutes of visiting the website.
(C) advisor profile and their display of expertise online: Financial planning is a journey. It is not a PDF document with a list of recommendations. So as clients, we should study the nature of the advisor from their interactions online.
Please do not take their news media appearances too seriously. Study their articles, posts on Facebook; their tweets; their responses in a group like Asan Ideas for Wealth. Does this give an impression of what kind of person they are? What are their views on investment risk and reward? Do they come across as someone who understands the subject and has the humility to keep learning?
Thumb rule: Some advisors thrive on being different. They would say “south is ok” when the consensus is “north” We would recommend avoiding such advisors. This is because if you discontinue working with them for some reason, realigning your portfolio with another advisor or even managing it on your own will become quite difficult.
(D) social proof of the advisor’s services: What do people say about the advisor in independent forms? You can contact some of these clients in private and learn more about their experiences.
If an advisor is popular, it means they will be busy. So if you are someone who asks a lot of questions and wants to learn money management, it would not be a good fit. An advisor with no social proof need not be rejected. You can look at their articles or social media contributions and take a call.
Once you do all this, you will possibly be left with not more than 3-4 advisors. At this stage, you will have to open a dialogue with the advisor. This might result in further filtering. Ps. Don’t assume only clients reject planners. The reverse is quite possible!
Then you will need to take a leap of faith as long you are comfortable with the person. What about the affordability of fees? That depends on how much you value the service and how it can transform your future.
For example, suppose you earn Rs. 30,000 a month (gross) a fee of up to Rs. 30,000 is reasonable IMO. It is, after all, a one time expense (the second year fee will reduce by 50-60% typically), and you can reap the benefits of the advice for years to come. So it is an investment that will earn regular dividends and not an expenditure. Unless you adopt this mindset, paying for advice will be difficult.
Price valuation is arbitrary. For example, a print book on Amazon for Rs. 1000 will have few takers, and even those who buy will complain if that book has only 30 pages. Kindle buyers will crib if such a book has even half the price as a physical book.
On the other hand, If a popular website with a thriving community sells the same book as a pdf for Rs. 1500, there will be enough takers for it. The profit margin in a physical book sale or kindle sale is significantly lower.
Who is to blame here? The buyer or seller (author)? The seller. They cannot expect people to pay a premium for an unknown product from an unknown person. This is why financial advisors should regularly write articles, help investors in an online community and constantly display their expertise in a helpful manner. Then they will always get a steady stream of clients willing to pay a premium.
In summary, instead of asking, “What is a reasonable fee for a financial advisor?” potential clients should spend time understanding what they want and what a financial planner does and then shortlist advisors based on their service, online presence and social proof. Advisors, for their part, should make things easier for the discerning client by showcasing their competence online.
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Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
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