Fee Only Financial Planning

What is Fee Only?

 

A fee-only financial planner, as the name suggests, is someone who gets directly compensated solely by their client through fees and not from commissions/brokerage earned from the sale of financial instruments or transactions. 

A fee-only financial planner does not sell/recommend products that pay the advisor commission (like traditional life insurance policies, regular mutual funds, annuities etc). The advisor acts as a fiduciary and ensures there is no conflict of interest arising from the products/strategies recommended.

Cost of Free Advice

Everyone likes free stuff and many in India believe that they should not be paying for financial advice. Especially so when they believe advice is available freely, from friends and family, from relationship managers at banks, from local insurance and mutual fund agents, stock brokers, etc.

            Sadly, one fails to realize that if something is offered free to you, they must be earning from some other source. And the source is usually in the form of commissions, brokerage, foreign tours, etc., that distributors make from selling you investment products. And guess what motivates them, higher commissions.

            The real cost of free advice is in the form of inadequate risk profiling, bad asset allocation and poor returns. We have noticed many elderly investors having large portions of their wealth in equity, why, because equity instruments pay higher commissions. This is highly unethical and can cause financial disasters.

Cost of Free Advice
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Fee Only v/s Commission Based

The single biggest advantage of a fee-only planner is that there is no conflict of interest. This ensures that the planner is not behind you selling instruments and is on your side when recommending strategies or financial instruments.

The added advantage of this is reduced expenses which are significantly lower when compared to what gets paid through commissions to a distributor.

            A fee-only financial planner is free to recommend instruments that best resolve the client’s needs. The advisor gives you the right solutions to help you achieve your financial goals by ignoring high expense/high commission oriented instruments and preferring instruments  like direct mutual funds, term life insurance policies, etc.

            The benefits of a fee-only financial planner include full transparency, no hidden charges and no bias towards any particular product or company offering.