Fee-based financial planners, fee-only Choose a financial planners, etc. India has a plethora of financial planners. The average citizen is unaware of them. We explore what to look for in a financial planner and how much they earn.
In a country that consistently saves over a quarter of its income, we’re deplorably underinsured and underexposed. The facts point to a lack of choose a financial planner. The term financial planning refers to a specific process – investing your savings today for your long-term goals. It may be easy to understand the subject, but finding the time to track investments and the discipline to make necessary changes is another story.
As a result, financial planners are needed. It is possible for financial planners to have studied personal finance (certified financial planners [CFPs]) or to have a finance background only (MBAs or chartered accountants). Only a doctor or lawyer can tell you for sure. This report will explain why you should ignore free advice and how to differentiate product pushers from financial planners before showing you how to evaluate their performance.
Agent vs Financial Planner
A financial planner helps you achieve your long-term goals by advising you on investment-related matters. In his role, he primarily advises, not sells. Due to a lack of willingness to pay purely for advice, financial advice in India has always been sales-driven. choose a financial planner As a result, a commission-based industry has arisen. Due to this, many substandard products, particularly in the insurance industry, have become popular among investors who are unaware of the high commissions sales agents earn. Firstly, let’s distinguish between the different types of financial advisers and find out how they make money.
Agents
A company only pays commissions to agents of insurance companies, mutual fund houses, and other financial institutions. As a result, they can work for multiple companies. Some agents specialise in one segment, such as insurance, but most work with multiple companies. A company fixed deposit agent may deal with insurance, mutual funds, and post-office schemes.
Cost
Commissions are the only way to pay for their services. All agents earn commissions. Also, they may have targets. For example, a Life Insurance Corporation agent must sell 12 insurance policies per year to maintain his license (from the Insurance Regulatory Development Authority).
Are they financial planners? No. Agents may discuss your finances with you, but this will probably not be a concrete assessment of your needs and goals. After all, you’re not paying for his advice. Plus, there’s always the conflict of interest between your benefit and his commission.
What You’re Likely To Be Sold
As most of their clients are from their neighbourhood, agents have a reputation to maintain. At first, an agent might prefer to build trust rather than sell the most expensive products. Over time, he will most likely recommend ULIPs or endowments.
Advice
Agents don’t meet with clients regularly. A meeting is usually arranged when a client wants to invest. Selling is the focus, not giving advice. The quality advice given to you during these meetings will depend on your relationship with the agent and the range of products he offers.
Fee-based Financial Planners
Any person you pay for financial advice will call himself a financial planner, regardless of how commissions influence his suggestions. If a financial planner earns commissions on the products he sells, he is known as a fee-based financial planner by choose a financial planner.
Cost
A planner’s quality, your investment objectives, and the amount you wish to invest should determine the cost of advice. A planner earns commissions on products he recommends. Is it a financial planner? Maybe. Financial planning involves drawing up a financial strategy and getting advice on matters such as saving for retirement and estate planning, regardless of whether the plans become reality.
The fact that he earns commissions on his recommendations should worry you. Because you’re already paying for the advice, perhaps his recommendations won’t be solely based on what the companies he’s partnered with offer. However, if you’re only offered commission-based products, take action.
Advice: Fee-based financial planners should be discussing not just your investments, but other finances as well. This will also include building an emergency savings account and clearing off your debts. If he’s simply telling you to invest in the products he offers, he is no more than an agent.
Fee-Only Financial Planners
These are unquestionably financial planners, as they have no ties with any company. They don’t earn commissions, just what they charge for the advice.
Cost
It depends on the planner’s quality, the amount you wish to invest, and your investment goals. Commissions won’t be saved. Investing through an agent or relationship manager will still be recommended by the financial planner.
Are they financial planners? Definitely. He must assist you with financial planning since he earns his money based on the quality of his advice. Financial planners generally provide their clients with tools to track and project their finances and propose a financial strategy. Based on your preferences, you could be sold anything from conservative to high risk schemes. The planner earns money from his recommendations, so there’s no conflict of interest.
Advice: Fee-only financial planners will discuss how to manage all your finances, from home and car loan repayment to your retirement fund choose a financial planner.
What To Look For in A Financial Planner
A financial planner may need at least a quarter to prove his abilities, but here are a few aspects that will reveal how likely he is to be capable.
Qualifications
Most financial planners are CFPs, but some are chartered accountants (CAs) and chartered financial analysts (CFAs). Only CFPs are trained in personal finance, but the other two are far more rigorous. CAs and CFAs should not be excluded. A CFA is licensed by the Financial Planning Standards Board of India (FPSB). When a financial planner refuses to disclose his commissions or coaxes you into buying things you don’t need, you can file a complaint with the FPSB.
Product Suite
Fee-based financial planners are often agents for companies and earn commissions on products they sell. Find out which companies they represent. A wider range of companies means less narrow-minded advice. Agents of insurance companies and mutual fund companies must now inform their clients of the Amount they will earn for each transaction. A Tata AIG mutual fund form, for example, states, ‘The AMFI Registration Number holder has disclosed to me the commissions he will earn (including trail commissions).’
Track Record: There’s no comprehensive way to find out a planner’s track record, but you can gauge his past performance by asking him for references from his client base and the industry. A transparent planner wouldn’t have a problem letting you meet his clients. Meeting with another client will also give you insight into what his work ethic is. Also find out if the planner has won any awards for his work.
Value-Added Services: Because of competition, many financial planners have taken to offering additional services. These services include access to an online portfolio management system, SMS alerts on the status of your investments, and even lessons and books on financial management.
Cost: As with lawyers and doctors, there’s no price tag on the services of a financial planner. The cost will depend on the credentials and experience of the planner, how aggressive your plans are, and whether or not you’d like the planner to frequently reinvest your money. However, it’s important to be clear what you’re paying the planner for.
The financial planning team of Jagoinvestor, for example, is clear on what you’re paying for. According to its website, you’ll have to shell out ₹ 9,000 for basic financial planning. For this, the firm will devise a financial strategy for you, grant you access to money management software, and send you books on financial planning. choose a financial planner
The Cost of Free Advice
Commissions are paid to agents. Most products – including mutual funds and insurance policies – charge you either directly or indirectly. National Small Savings Fund (NSSF) pays commissions on other schemes, such as post-office schemes. If you analyse this information, keep in mind that who pays the agent’s commission and what the amount is less important than whether a particular investment is right for you.
A recurring deposit at the post office, for example, gives the agent a commission of 4%, but it still saves you money. Some agents earn commissions even if you remain invested in a scheme (known as trail commissions). Here’s what agents and fee-based financial planners earn.
Recurring Deposit
Agents earn 4% on the total invested amount, so if you put aside ₹120,000 a year in this scheme, the agent will earn ₹3000 as commission. There is no trail commission with these schemes. Also, the commission doesn’t come out of your pocket. It’s paid for by the NSSF. In 2011-12, the NSSF paid over ₹2000 crore in commissions to agents.
Post Office Schemes
Also paid for by the NSSF, commissions have been reduced to 0.5% from 1%, on recommendations of the Shyamala Gopinath committee in 2011. The committee also recommended that commissions on investment in the Public Provident Fund (PPF) scheme be stopped. Until March 31, 2012, agents received 1% on PPF investments.
Mutual Funds
Initially, mutual fund agents received 2.25% of your investment as commission. Since 2010, many mutual fund houses have stopped paying upfront commissions. Fund houses must now compensate their agents. An agent will charge you between 0.5 and 2%. If you perform the transaction yourself, you’ll save this amount.
Mutual fund agents still earn trail commission. Because you are loyal to the mutual fund, this is a loyalty bonus. Each year, mutual fund companies deduct 2-2.5% for their services. A portion of this money goes to the mutual fund agent. You will be charged 2.5% even if you perform the transaction yourself for choose a financial planner
Insurance Schemes
Insurance companies don’t disclose how much their agents earn in commissions publicly, but it is well known that commissions on ULIP and endowment plans are high. In the Insurance Act, 1938, limits on commission payable are specified.
Life Insurance
In the first year, an insurance company less than 10 years old can pay up to 40% of the premium. Older companies may not pay more than 35. Agents may receive up to 7.5% of the premium in the second and third years. The agent may then receive up to 5% of the premium. The first year’s commission is capped at 7.5%. Up to 2% can be earned thereafter.
Health Insurance: Commission is capped at 15% during the entire term of the product.
Conclusion
Fee-only financial advisors are the best choice since they do not earn a commission. Fee-based Choose a Financial Planner and agents should be carefully vetted. Prior to starting a financial relationship, check the planner’s track record. For any help , contact our team.
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