What You Need To Know Before Hiring a Financial Advisor

What is that I hear? Do you wish to engage a financial advisor/planner? Congratulations! A wonderfully positive step that has the potential to change your financial life.

Do look before you leap though! Are you aware of what you are getting into? Whether you are planning to engage a planner or are already using their services, here is a (reasonably exhaustive!) list of must-know information about financial planners.

  1. Most financial planners (certified or otherwise)  engage in mutual fund distribution and/or insurance sales. That is they are also agents. When I say most, a good 85-90% of them at least?!
  2. Such planners are known as fee-based financial planners. A fee-only  financial planner is one who gets paid only for the financial plan he/she creates for you. As you can imagine fee-only planners are an endangered if not extinct species!
  3. Mutual fund distribution is commission-based selling.  There are different kinds of incentives (variable from AMC to AMC) that a distributor is offered to ‘push mutual funds.
  4. So when a financial planner recommends mutual funds to you, can you be sure that commissions are not behind the recommendations? Everything from the number of funds, to the choice of AMC and choice of fund can be linked to commissions or relationship of the planner with the AMC. This leads to a clear and obvious conflict of interest. Is it good enough for you if the planners says there is no conflict of interest involved in such an arrangement?
  1. Something known as SEBI Advisor regulations hopes to (in spirit at least) change the way fee-based planners operate and eliminate this conflict of interest.
  1. Before the regulations came into place, when fee-based planners create a financial plan they will suggest that you invest ‘through them’ as it will be convenient for them to monitor and advice on your portfolio. This means that they want to earn commissions from your investments.
  1. Since January 2013, direct  mutual fund plans are in force. This allows investors to directly invest via the AMC. Since no trail commissions are paid to advisors/agents in this mode, it allows the direct investor to earn up to 0.5% more returns for each year of investment.
  1. If you are already investing in regular  mutual funds via an agent or financial planner and wish to go ‘direct’, you are likely to be met with a response like, “If you go direct I will not receive information about your transactions with the AMC. This will make it difficult for me to monitor your portfolio and advice you”!
  1. The information from AMCs or ‘feeds’ as they call them is just your account statement! It is complete bullshit if a financial planner claims that it will be ‘difficult’ to monitor the folio and advice without the feeds.  That is, if you do not invest via them in regular plans.  I will be happy to demonstrate, how from pdf account statements a portfolio can be effectively monitored. The ‘extra’ time spent is hardly significant.
  1. The customer is king!  Yes you and me.  We have the mandate from SEBI to go direct. That is we can invest via the AMC and earn about 0.5% more returns by saving trail commission. Do not expect fee-based financial planners to spread this bit financial literacy!
must know information before hiring a financial adviser
The Thinker by Auguste Rodin at the Cleveland Museum of art. Photo by Erik Drost (Flickr)
  1. As per SEBI advisors regulations, An investment adviser shall not receive any consideration by way of remuneration or compensation or in any other form from any person other than the client being advised, in respect of the underlying products or securities for which advice is provided.
  1. In English, this means, financial planners should not receive commissions by distributing mutual funds and any investment or insurance products they recommend to clients.
  1. It is important for investors to recognise that a majority of financial planners have been affected by this. Commissions from mutual fund sales are a major source of income.
  1. Amusingly, SEBI followed this rather strict ruling with An investment adviser shall maintain an arms-length relationship between its activities as an investment adviser and other activities” 
  1. Financial planners have freely interpreted what ‘arms length’ stands for. There are tales on the internet about how one financial planners have shifted their businesses to fathers and daughters. One even tried to shift it to his wife!  Check out my Weekend Round Up posts for more information in this regard.
  1. It is our duty as investors to question financial planners who have shifted (or attempting to shift) distribution businesses in the name of family members.  Clearly, SEBIs goal of removing the conflict of interest mentioned above has been diluted by this fuzzy arms-length ‘ruling’. 
  1. It is important for you as an investor and potential client to recognise that a majority of financial planners have not complied with the SEBI regulations.  Those who do not distribute mutual funds have happily registered. Those that can shift the business in the name of a family member or friend have managed to do so.  What about the others?  Non-conformation with SEBI regulations has made their businesses illegal. 
  1. If you have already engaged a financial planner, ask them if they are SEBI registered.  If they have not, find out why.  Would you like to engage an illegal business operation? 
  1. Financial planners continue to ‘encourage’ clients to invest via them ignoring the SEBI regulations!  Planners who are SEBI registered ‘encourage’ clients (they cannot insist!) to invest via an agency allegedly independent of their business.  Do not be surprised if your favourite personal finance blogger is on either list!
  1. What should you do?  Here are (some!) choices

a)     Seek out an SEBI registered planner/advisor who does not distribute mutual funds or sells insurance. They provide a financial plan, you pay them and implement the recommendations on your own. Simple, clean and free from conflict of interest. This is the best and most suitable option for investors.  Investors who claim they have ‘no time’ to implement can go jump as far as I am concerned.

b)     Difficult to find fee-only planners? Not at all! I maintain a (short!) list of fee-only planners. Happy to share it with those in need.

c)     DIY. Manage your finances on your own. It is not rocket science.

d)     Choose a SEBI registered planner/advisor who ‘encourages’ clients to invest via an ‘independent’ body! Ask them how independent it really is! But first ask yourself how independent that would really be!

e)     Choose a fee-based planner/advisor who has not (yet!) bothered to register with SEBI. That is they earn from the financial plan and from commissions from mutual funds.

 Addendum to options (d) and (e)

  • Pay for the plan and tell the planner that you would implement on your own.
  • Agree to provide access to all necessary investment records at the time of review (after 6 months or 1 year).
  • If they say it will be ‘difficult’ for them to review the plan if you implement on your own (that is buy direct mutual funds), walk away
  • If they don’t agree, walk away

This post originates in part from a discussion thread in FB group Asan Ideas for Wealth.

Confused?! Here is the key takeaway:

Pay for financial advice and implement on your own.

Or

Do it yourself all the way.

Both options come at a price. Money in case of the former and time/effort in case of the latter.

Both options are better than encouraging financial planners directly or ‘indirectly’ associated with commission based selling!

There is a need to create an awarness about SEBI advisor regulations. Please share this post to your friends and social contacts.

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102 thoughts on “What You Need To Know Before Hiring a Financial Advisor

  1. AK Anand

    Thanks Pattu for the very valuable and hard-hitting write-up. I know that your aim is not to hit someone, but to educate your readers. Some may consider that your write-up is targeted at them, but that is hardly an issue.

    As you are well aware, there are other aspects of financial planning where a financial planner comes in, which are separated from investments, and which are completely free of any commissions. To quote a few - writing your will, estate planning, Hindu Undivided Family, etc. While writing one's will is not too difficult, for the other two, the services of a planner would definitely help. DIY may not be entirely possible. One reason why I am seriously considering using a Planner. But yes, where MFs, and HI, and Life Insurance come in, it should be to just take an advice, and implement on your own thereafter. Fully agree with you on that. And the Planner should not feel bad about it as well.

    A thought would creep into most people's mind that if we take advice from a planner, who is into fee-based business, one may get "step-motherly" advice, if one doesn't invest through the planner. In such a case, it would be best to choose fee-only planners.

    Reply
    1. pattu

      Thank you AK. I usually never proof read my posts to much. This one I had to do a few times to ensure everything is worded right.

      Completely agree with you that there are other aspect of financial planning which requires professional advice. Some of the issues you mentioned can be handled via fee-only planners, CAs and lawyers. The key is payment for advice. once this becomes popular, everything will become sorted out eventually.

      I fully support the idea of fee-only planning.

      Reply
  2. AK Anand

    Thanks Pattu for the very valuable and hard-hitting write-up. I know that your aim is not to hit someone, but to educate your readers. Some may consider that your write-up is targeted at them, but that is hardly an issue.

    As you are well aware, there are other aspects of financial planning where a financial planner comes in, which are separated from investments, and which are completely free of any commissions. To quote a few - writing your will, estate planning, Hindu Undivided Family, etc. While writing one's will is not too difficult, for the other two, the services of a planner would definitely help. DIY may not be entirely possible. One reason why I am seriously considering using a Planner. But yes, where MFs, and HI, and Life Insurance come in, it should be to just take an advice, and implement on your own thereafter. Fully agree with you on that. And the Planner should not feel bad about it as well.

    A thought would creep into most people's mind that if we take advice from a planner, who is into fee-based business, one may get "step-motherly" advice, if one doesn't invest through the planner. In such a case, it would be best to choose fee-only planners.

    Reply
    1. pattu

      Thank you AK. I usually never proof read my posts to much. This one I had to do a few times to ensure everything is worded right.

      Completely agree with you that there are other aspect of financial planning which requires professional advice. Some of the issues you mentioned can be handled via fee-only planners, CAs and lawyers. The key is payment for advice. once this becomes popular, everything will become sorted out eventually.

      I fully support the idea of fee-only planning.

      Reply
  3. Rashmi

    Hello Sir,

    I got your article link from "Asan Ideas for Wealth". It's really very well written and explained as why should I opt for a financial advisor who doesn't bother me for selling his products rather interested in his/her fee for advice. I would like to see and choose one of the Feeonly planners. Can share a list? Many thanks in advance

    Reply
  4. Rashmi

    Hello Sir,

    I got your article link from "Asan Ideas for Wealth". It's really very well written and explained as why should I opt for a financial advisor who doesn't bother me for selling his products rather interested in his/her fee for advice. I would like to see and choose one of the Feeonly planners. Can share a list? Many thanks in advance

    Reply
  5. Mohit

    As always I love reading your blogs. Can you please share the last of free based financial planners with me. I am looking for some professional help.

    Reply
  6. Mohit

    As always I love reading your blogs. Can you please share the last of free based financial planners with me. I am looking for some professional help.

    Reply
  7. Sukhvinder Sidhu

    Thanks Pattu for the straight-forward article informing well the common investors. It needs soul intact to talk and address truth, be it be for an adviser, an investor himself or one involved in creating awareness like you.

    I feel close to you and your site due to the aspect of this financial awareness creation and your helpful calculators available to the public at large. I myself consider creating financial awareness as my first task, and giving service for fee as second. When an investor meets me I first offer him/her the option of 'DIY' with my guidance, first starting with writing down his expenses, if he wants and if he can. (This has basically come with me to develop faith, as I found largely that an investor initially mistakes me for an agent wanting to sell some policy.)

    There is great lack of awareness and many misconceptions in the mind of common investors. Your article is a nice effort in the direction of correcting those misconceptions. Thanks a lot!

    Reply
    1. pattu

      Is is my honor and privilege to connect with you. Thank for you kind words of encouragement and support. I have no doubt in my mind fee-only advisory will grow stronger and stronger. The comments to this post can serve as a small proof for that.

      Reply
  8. Sukhvinder Sidhu

    Thanks Pattu for the straight-forward article informing well the common investors. It needs soul intact to talk and address truth, be it be for an adviser, an investor himself or one involved in creating awareness like you.

    I feel close to you and your site due to the aspect of this financial awareness creation and your helpful calculators available to the public at large. I myself consider creating financial awareness as my first task, and giving service for fee as second. When an investor meets me I first offer him/her the option of 'DIY' with my guidance, first starting with writing down his expenses, if he wants and if he can. (This has basically come with me to develop faith, as I found largely that an investor initially mistakes me for an agent wanting to sell some policy.)

    There is great lack of awareness and many misconceptions in the mind of common investors. Your article is a nice effort in the direction of correcting those misconceptions. Thanks a lot!

    Reply
    1. pattu

      Is is my honor and privilege to connect with you. Thank for you kind words of encouragement and support. I have no doubt in my mind fee-only advisory will grow stronger and stronger. The comments to this post can serve as a small proof for that.

      Reply
  9. SB

    Thanks a lot Pattu. That's really informative and makes a lot of sense. I myself is looking for a FP from long time but couldn't make my mind. I request you to please share your compilation of fee only planners. Really appreciate your help.

    Thanks & regards,
    SB

    Reply
  10. SB

    Thanks a lot Pattu. That's really informative and makes a lot of sense. I myself is looking for a FP from long time but couldn't make my mind. I request you to please share your compilation of fee only planners. Really appreciate your help.

    Thanks & regards,
    SB

    Reply
  11. Ramamurthy

    There are also a lot of Advisors who give fee based tips on shares.They make a lot of claim that the tips they give have resulted in 100 % returns in one year etc!!!.I know you do not invest in shares.Can any one tell me whether they have utilised the services of any such advisors and if so what is their experience?

    Reply
    1. pattu

      I know a planner who does this. He does not claim accuracy and understands what long term returns means. So I guess we will have access them case by case. I would rather subscribe to 'The Equity Desk' by Basant Maheswari than rely on tips. He has good record and is well respected.

      Reply
  12. ashalanshu

    How many people from here on wards convert themselves from Free lunch seekers to Fee payer is the million rupee question. Yes the things mentioned by you are correct. As an investor, we do not have much choice. Either DIY completely or pay fee for planning and advisory part and implement the plan on your own. If we do not go for it, we should not crib about mis-selling or commission earning.

    Thanks

    Ashal

    Reply
    1. pattu

      You are 100% right, Ashal. My feeling there is a strong demand for sound commission-free advice. Many people are willing to pay a fee but are not sure who to ask and where to look. This is one are of financial literacy that requires a lot of push.

      Reply
  13. Chetan Ambi

    Dear Pattu, Thanks for coming up with this article for my query in AIFW. Fully agree with what you said. DIY or take advise and implement on own. Wonderful article.
    Could you please share fee only based planner list with me?

    Reply
  14. krishna kiriti

    Hi.. I have been reading your posts, and they are really informative for the investor. Can you please share the list of fee based financial planners please.

    Reply
  15. Ganesh

    Thanks so much for the valuable article. I have always had tough time in coming up with the list of planners who are good and provide only plan for a fee. Will be of great help if you can share the list with me. thanks again for having this amazing site.

    Reply
  16. AK Anand

    Pattu, I have a small suggestion. Considering the import of this particular post, and by that, I don't at all mean that your other posts are any less valuable, it may be a good idea if you repeat this post every, say, two weeks or so. Additionally, Ashal can make this a pinned post in AIFW Group, so that everyone who logs into the group is reminded of it. Thanks.

    Reply
    1. pattu

      Thanks AK. I will pin this post to the right of my blog. I cannot republish the post that often as it would amount to spamming the inboxes of my subscribers. Thank you.

      Reply
  17. Arup Chattopadhyay

    Hello Pattu, good morning. Very nice article. As you have rightly observed and mentioned that many people are willing to pay a fee but are not sure who to ask and where to look.

    Would appreciate if you could share the list of fee based professional and experienced planners based out of Bangalore to my email?

    Best wishes and good luck. Have a good day!

    Thanks, and regards.

    Reply
  18. Hari Bhaskar

    Sir, I have been following your blog for the last few months (came to know you from Subra's blog) but this is the first time I am commenting. You are doing a fantastic job. I started investing in MFs around 2008 (which I feel is late, I was in mid-30s then) and the knowledge gained so far from finance blogs like yours have been helpful. Blogging needs quality time and I wonder how you find time to blog inspite of your busy schedule. Please keep it up.

    I would be obliged if you could send me the list of fee only planners. I have been looking for such planners for quite some time but could not find one (probably my laziness). Thank you.

    Reply
    1. pattu

      Thank you for your kind words of encouragement, Hari. Yes blogging takes time. Sometimes I am able to spare it and sometimes not. I will send you the list of planners to your email.

      Reply
  19. avinash

    Hi pattu. Thanks for sharing this article. Can you send me the list of advisors in bangalore. Keep up the good work sir. Thanks in advance.

    Reply
  20. Abhinav Gulechha

    Dear Pattu

    Very nice initiative from you, and your deep thought and insight on this topic will surely be useful for the readers. Fee-only SEBI registered planner is the only legal way left now, and there is no escape. Sooner or later, advisors will have to realise it and comply.

    Echo your views on implementation part. In my view, a young family can do 90% of investment planning by way of PPF and 1-2 good MFs – a consumer DOESNT need implementation advice from a financial planner – what max. he/she needs is to resist temptation to invest in every new product that comes in the way, or that promise supernormal return which cannot be sustained for longer periods.

    Having received my SEBI License some days back itself, I can relate to the fear advisors have for the compliances required – but somewhere we also need to understand that these compliances and disclosures which may seem painful in short term, are a necessary pain to give birth to fee-only financial planning as a profession – there will be interpretation gaps and a compliance cost that can frighten in short term, but things will even out in the long term.

    Thanks for the post..

    Reply
    1. pattu

      Dear Abhinav, Appreciate your detailed comment and show of support. I wish you all the very best in your practice.

      Reply
  21. Viren Phansalkar

    Hello Pattu,

    What a timely article!!
    My friend was seeking advice from a CFP. The CFP told him about all usual things except for one. He told my friend that he would actively manage his portfolio. I told my friend to ask what is 'active management' in portfolio. The reply from CFP was amusing. He told that he would review the returns of the investments on half yearly and yearly basis. If 2 successive reviews find that the returns are less than 12%, he would pull money out and invest in some other funds or stocks or with some other AMC...
    I advised him to walk away....
    Now, I will forward this link to him and if interested he can ask for the list from you and also be aware of what to look from them....
    As always: wonderful post Pattu....

    Reply
    1. pattu

      Thank you for sharing Viren. This is the reason why people mistrust planners. The only way out is to pay for advice and implement on our own. Also see Abhinav Gulechha comment.

      Reply
  22. amarjeetsingh

    sir,
    intresting blog. thanks for increasing financial literacy.

    pls share the list of the fee based planners. Can u also inform what is the normal fee being charged by the planners.

    keep it up

    Reply
    1. pattu

      Thanks. Sent the list to your email. Fee will vary from planner and depends on services. Expect 5K for a financial plan.

      Reply
  23. amarjeetsingh

    sir,

    do u have a list of city based planners, if so then pls mail me the list of delhi based planners.

    cheers

    Reply
  24. Melvin Joseph

    Great article as usual from Pattu. I am sure this will benefit many. You are absolutely right.There are 2 options (1) opt for a fee only planner or (2) DIY.
    I am telling all my clients, if you invest some time on a monthly basis, within a year you can become a DIY person as far as personal finance is concerned. This is not a rocket science. But there should be willingness to learn. Thanks for adding my name to your list.
    I am planning to write an article on how much a fee only planner can save for his client.

    Reply
  25. Sanjiv Singhal

    Hi Pattu. As always a very well written article but I'm afraid you've reached an incomplete conclusion in the absence of an understanding of the economics of financial advice. And I’m not saying this only because I represent the much maligned “distributors” 🙂

    It costs approximately Rs 25,000 per client per annum to provide personalised advice. The math is simple: it takes an average of 8-10 hours per annum per client if you want to provide quality advice. Apportion that over the salary of a reasonably qualified and experienced financial planner, add some costs of doing business and you get the number.

    The cost is higher in case of DYI because the time spent will be about 50 hours per annum (at your salary rate) unless you’re Pattu who both enjoys this and knows his stuff 🙂

    Given this, personalised financial advice is out of reach of most people. If you’re investing about 2 lakh per annum, the cost of advice is a whopping 12.5%!

    Which is why a financial planner finds a way to charge you without appearing to. He’ll charge you say 10K for a financial plan and then hope to make a commission on an Insurance policy. Incidentally, a planner can never hope to recoup his cost by recommending mutual funds. At 0.5% commission, you’ll have to be investing about 30 lakhs per year for him to break even.

    This is also where the recommendation to pay for advise and implement on your own falls apart. Would you be willing to pay 25K for pure advice?

    Complete DIY is not a realistic option for most people. I'm excluding the readers of this blog because they are by self-selection an informed and significantly above average group.

    So are investors doomed?
    Not really. The answer lies in Pattu’s article itself and comments by Mr AK Anand & Mr Sukhvinder Singh Sidhu.

    Investors have to look at financial advice as going beyond stock or fund “tips”. They have to value the holistic advice which a planner provides. Believe me, it’s worth spending the money to get that holistic advice but let it be about setting realistic goals, and internalising how much you need to save. I refer, for example, to Pattu’s earlier article which highlighted a need to save 60% of your savings if debt was your chosen investing vehicle. A lot of people still think they can get by with saving 10% of their salary in FDs. A good planner will quickly set your expectations right.

    The other alternative is to reduce the per client cost of advice by standardised products such as the “Equity Desk” newsletter. Each subscriber gets high quality but NOT personalised advice.

    This latter, was the thinking behind our own product which offers a transparent and standardised mutual fund portfolio suitable for (we think) 90% of the people. As a distributor we make 0.5% trail commission which is only about Rs 50 per month for an investor saving 10K per month. For this minor cost our investor gets high quality research based selection because our cost is spread across thousands of investors. Everyone wins.

    Another observation: I don’t believe SEBI’s mandate is to go direct. I believe SEBI's goal is to make advisors and distributors more accountable by creating multiple alternatives for investors. As an industry, we've been put on notice. We have to deliver tangible value. If we don’t, customers will try other options because thanks to SEBI they now exist.

    Reply
    1. pattu

      Dear Sanjiv,
      For two reasons I am glad that it is you who has first criticised the article.
      1) It always a pleasure to react to an erudite and balanced response
      2) It gives me a chance to clear the air about my thoughts on mutual fund distribution.

      First let me concede that I am not aware of the economics of financial advice. While doing so will no doubt add a spot of sympathy for fee-based planners, it will not change the way I feel about they way they operate.
      Let me make it clear to you and other distributors that I am not anti-distributor. The trouble with distributors is the spread in their competence levels. If the standard deviation of financial planner competence is more or less equual to the average, the spread for distributors is more than twice the average!

      One one end we have complete louts clueless about risk. On the other hand we people like you, Sharad and few other CFPs I know. There is method in the way they select funds.

      I am fan of solid quantitative advice and will happily recommend readers to solicit distributors who operate this way.

      The trouble comes when distribution is combined with financial planning. If a fee-only financial planners says go open an account in ScripBox because they are good in containing volatility, why should I have a problem with that?

      I have a problem when a planner says do it through me else I will have trouble advising. You will have to admit that is downright nonsense and unethical. Perhaps I am dimwitted and naive to understand the underlying economics but when the regulator mandates that product advisory part of a financial plan should not be commission based, it is clear that it it a question of the investors greater good and I support it.

      Will investors pay 25K for a plan? Yes and no. Do all CFPs have the competence to convince investors to pay such a fee? Yes and no. (Some distribute and get 25K!)

      Let us leave aside investors who will not pay for advice. God help them. No point talking about them. There is a decent trickle of investors who are willing to pay. From what I see financial planners have not projected themselves in the right way to attract such clients. Also the group that will pay are worried about the huge spread in fees. A cfp charges 5K and another 25K. Why should I pay 20 K more for the same qualifications. So it is not easy for investors either.

      I agree mf commission is peanuts. So leave it to quant based distributors like you and focus on fee-only planning. You set up a system and let it become popular. So running costs for you come down the line.

      While planners should focus on getting more clients who pay for plans. They are not doing this the right way. I have enough material for a post on this.
      It boils down to the average competence of a CFP. The rate at which an average CFP converts clients is simply abysmal. Please don't blame investor mentality. That is the softer option. Blame the competence of CFPs and the curriculum.

      If they market their abilities and target the real issues of investors, word of mouth will result in steady income. It is tough but not impossible. If I, with just a couple of years of blogging receive steady financial planning requests from readers who are willing to pay (I turn down the money) why can't a formally educated CFP manage after say, 3 years in the field?

      It all comes down to competence. There is a sea of mediocrity. So I will not blame the investor of being wary for whatever reason.

      I am not promoting DIY as a viable option for everyone. I have repeatedly said that the only way to cleanse the stench in financial services is for investors to pay for advice.

      Bottomline: please do not justify the actions of fee-based planners based on economics. The competent ones always find a way. The rest get left behind. That is life and the way it should be. Of all people, you who runs a novel mf service ought to know this.

      You have summed up SEBIs intentions quite well. I did not say SEBIs mandate is to go direct. I said investors have the mandate from SEBI to go direct. I meant precisely what you state.

      Thank you.

      Reply
  26. Sukhvinder Sidhu

    Dear Pattu, it is heartening to read your views on marketing competence of CFPs. You have gone beyond the topic of this post through this comment to guide and motivate fee-only planners, who generally are weak in this area (keeping their focus more on other important aspects of the profession).

    The curriculum taught us well how to work in the best interest of investors by way of financial planning (rather it was convincing enough for a person like me to take the plunge with all the business risks sacrificing the monitory benefits hitherto available). But it is now right time to understand what you say, the need to learn to market our abilities and present ourselves better, for the benefit of investors and financial advisory profession. Thanks for your strong voice in this direction.

    Reply
    1. pattu

      Thank you very much. It takes a strong mind like you to not hastily react to strong comments such as mine and appreciate its essence.

      Reply
  27. Guru

    Sh. Pattu,

    Ashal's comment is valid on to how many of us getting the list will actually pay for advise.

    Precisely for the reasons mentioned in the article most people are not convinced of going to the advisor but at the same time are victims of friendly neighbour, uncle whatever's ability to peddle endowment and ULIP's and the challenge is also about trusting an individual with your financial details.

    Regards
    Guru

    Reply
    1. pattu

      Agree with you, it is certainly good to see so many people interested. We should start somewhere, and this is a decent first step.

      Reply
  28. Veeresh

    Hi Pattu Sir,

    Could you please share the list of financial planners with me.

    I was thinking that the financial planner I am going to hire should be from Bangalore so that I can meet him face to face.
    What do you think. Having financial planner away from my city and communicating with him over phone of email is good enough.

    Thanks and Regards,
    Veeresh

    Reply
  29. Sukhvinder Sidhu

    This is for those who are worried about fees for financial planning service even after being convinced about its benefits after reading this wonderful article. You 1) spend so much in form of costs/commissions of investments, 2) outgo some of your hard-earnings by way of taxes otherwise savable, 3) take financial risks with each passing moment in the absence of proper insurance, 4) keep at stake your life's concerned financial goals with your random investments. A fee-only financial planner is in profession primarily to satisfy his/her soul and to serve his/her clients well. Having forgone commissions or other monetary benefits and having invested so much time & money in his knowledge building, (s)he does not need fees as much as (s)he needs client's financial welfare. You better focus on finding a competent adviser to your satisfaction & faith. And better still, if possible, begin with a "do-it-yourself" approach.

    Reply
  30. Prasanth

    sir,

    Can you please send me the fee based planners list? I'm looking for a fee based planner and your list will be of immense help. Thank you.

    Reply
  31. Anil

    It's is absurd thought process that the advisor should not earn commissions from mutual funds. It's not important that how much the advisor is earning but more important to see what is he delivering. I think lot has been said against advisory and distribution but the credibility will take time to build and return based fee should be the criteria along with also making sure that the advisor survives. SEBI till now has done a decent job and people criticising SEBI are the ones who don't understand this business. I think advisory all across the globe is a decent profession with decent earnings and no reason why such breeds can't exist in India.

    Reply
    1. pattu

      Thank you for your view. My point is that an advisor is duty bound to offer a choice when it comes to implementation: Invest through me or go direct and must not resort to flimsy excuses to make clients invest through them.

      Reply
  32. Anil

    What you have to do is build up experience. It takes time. Don't give all your portfolio initially. Keep benchmarks as returns and proceed.

    Reply
  33. Kuntal

    MF commission may be peanuts- but for a long -term investor the trail commission after a few years is quite substantial.

    Reply
  34. Anand Doctor

    Dear Pattu, a great post as usual.

    It's great to see how a 'lay investor' like you, by applying his mind and making some effort, not only plans and manages his own finances well but also teaches others - and does it better than many 'professionals'! Ahem, not so great for us professionals 😉

    Of course, not everyone is able to do that. Also, not everyone wants to do that. In fact, some of my clients include highly successful people from the financial services industry.

    While I have great respect for the objectivity that quantitative techniques provide, I would like to point out that there is also the human element to consider. And I feel it is more important than most people realise.

    We all know the basics of living a healthy life and keeping fit but fail to do so very well. Similarly, our attitudes, habits, emotions and biases also come in the way of exhibiting the right financial behavior - more often than not.

    In fact, most of the times when we make bad financial decisions, we already know they are bad! Which is why the study of 'behavioral finance' is gaining momentum.

    A good financial advisor will provide knowledge based technical advice based on the current situation. But a really good advisor will empower the client by helping him inculcate the right financial habits, encourage discipline, and steer clear of personal biases and blind spots.

    Hopefully, the number of such financial advisors will rise in the times to come.. When more and more of us are able to this and do this well, we will finally be able to call our profession a noble profession, like that of a doctor, teacher, etc.. and this post will no longer be necessary!

    Until then, keep up the good work and inspire us 'professionals' to do better! 🙂

    Reply
    1. pattu

      Anand, I am not at all against paid advisory. I am happy to my bit to promote fee-only planning. I just cannot stand fee-based advisory and how clients are mis-sold 'regular' funds. I cannot stand the devious ways use to become SEBI registered. Hence doing my bit to warn investors about this. This article is not about DIY vs paid planning.

      Reply
  35. Anand Doctor

    Oh, I certainly did not mean to imply that you are against paid planning. Just wanted to highlight that apart from the numbers game, behavioral issues also play a major role in one's financial decisions. And financial planners as well as investors themselves must address this also for a successful financial life.

    As for mis-selling by 'planners', I know from personal interaction that 'Planners' including some CFPs and even some SEBI registered RIAs, continue to do this but in a more sophisticated manner. The more astute business persons have realised that when you charge a fee and give partly good advice, there is higher trust from the client and your mis-selling goes unnoticed. This is even worse than pure distributors doing it because they are giving a bad name to a budding noble profession. I guess, ultimately ethics are an individual choice.

    But I am hopeful that the good ones will outnumber the rotten apples. And the investors, with help from people like you, will know the difference.

    Reply
    1. pattu

      Thanks Anand. You have summed up the situation quite well. Let us hope for a better future in which young people can shine in fee-only advisory.

      Reply
    1. pattu

      I don't know any fee-only planners in Chennai. There are a few SEBI registered advisors, but I am not sure how they handle distribution.

      Reply
  36. Ashal Jauhari

    Dear Mithragk, why don't you contact any non-Chennai Planner who is available online?

    Thanks

    Ashal

    Reply
  37. netizen

    An eye opener post. Thank you. What about the existing investors who have available FP services for a fee e.g. 20K and also certain percentage for asset under management that included financial plan creation, MFs, implementation etc. Should such existing investors move away from fee based to fee only. Thanks to your article many would understand why , but 'when and how" is tough one. It would be very helpful if exit strategy is explained here .

    Please share the list of fee only advisor and thank you again.

    Reply
    1. pattu

      Thank you. Such advisors can longer charge a fee for AUM and get new trail commissions. Most of them will simply shift this wing in the name of a relative and claim they have complied!
      When and how is a tough call and cannot be generalized. Can an investor operating under AUm fee model manage to do it on their own? Easier said than done. So it has to be on an individual basis. Generic advice in this regard may be harmful. Will send the list by email.

      Reply
  38. prns

    hey, great article.
    i hope you wouldn't mind sending me the list of financial planners as well.
    i guess it includes people based in delhi.

    Reply
  39. naveen shinde

    Hi, Good article. Can you please share the last of free based financial planners with me. I am looking for some professional help, Thanks, Naveen

    Reply
  40. Tanay M Patekar

    Dear Mr Pattu,
    I have been a into a - Regular Plan from a year. How can one opt for a - Direct plan, considering 1) To continue / discontinue in the present fund house in which the current investment is carried.
    2) Opting the direct plan continues the present investment cycle or restarting the same.
    Please suggest the possibilities and the process for converting a regular plan into a direct one.
    Thanking you in advance.
    TAPS

    Reply

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