Home / Opinion / Good things in life cost money, including good financial advice

Everyone worries about their tomorrow and want it pan out in a certain way. This is because the future we dream of is not just for us, but also for our families.

Aspirations build up over time, and we need money to support them. We work hard during our waking hours to live our todays and secure our tomorrows. We spend the prime of our lives—35 years or more—slaving away to ensure that our family goals are met. And what do most people do with the money they have made? Well, they just don’t bother about it that much, even though the purpose of earning money is to secure their tomorrow.

It is true that finance is not a topic that interests many people. It actually scares people, and most would want to brush it aside or postpone dealing with it until absolutely necessary. Most people do not want to go through the brochures, understand the product and all its features—it’s way too boring.

In the end, the hard-earned money is unceremoniously dumped into one scheme or another, to get it out of the way. Most people just ape what a friend or colleague had done with her money. And many times, they follow the ‘advice’ of a friendly agent. The agent scores as she fills up the forms, collects the cheques and gives receipts for tax savings. But during this whole process, the investor’s goals, the suitability of the product to the goal, the risk-return metrics inherent in the product or the risk tolerance level are even not considered. Such a decision is not expected to be aligned with the investor’s actual needs.

Isn’t it ironical that the money we spend all our waking hours earning is given such scant attention? Why are people not ready to hire someone to offer them good advice? One explanation is that either they feel they know enough to take decisions on their own or that they can simply ask their friends. The problem here is that the friend is equally clueless.

What about the ‘advice’ given by agents? There are problems here as well. Firstly, agents generally only have knowledge about the products that they are selling and their area of expertise, and not the entire gamut of financial products. Moreover, they are trained to sell products; the maximum that can be expected of them is that they offer products that are intended for the goals—such as a child plan. These agents are not trained to understand the financial goals of an investor, draw up strategies, study alternatives and advise on optimal strategies to achieve desired ends.

This is where financial advisers come in. They have the client’s interests in mind, and also know the subject well enough to analyse their situation, come up with alternatives and evaluate strategies to achieve desired outcomes and put together a portfolio to do precisely that. But if they do all of that, a lot of their time will be spent. Hence, these advisers will charge for their services.

The Securities and Exchange Board of India (Sebi) had issued Investment Advisers Regulations, 2013. This was done to ensure that there is a set of high quality advisers who are client-centric and can represent them, and will adhere to high benchmarks in terms of qualification and compliance. These advisers can only collect fees from their clients and not have any other source of income so that there is no conflict of interest. This focuses their efforts and makes them work solely for their client’s benefit. They are expected to assume a fiduciary responsibility. Fiduciaries are those who put their client’s interest ahead of everything else, including their own.

Such advisers will charge a fee for their services. Therefore, investors at large have access to unbiased advisers who can be relied upon to do what is in their best interest. However, the fee bit is troublesome to many, as they have never paid for advice. They pay indirectly (which they know). What they are hesitant about is paying a fee directly.

But depending on product sellers for advice can be costly; much costlier than the fee paid directly since what is sold may be a high-expense product. Worse, the product may not be suitable for the person in terms of risk-return, liquidity, and tenure. Having such a product could lead to not being able to achieve goals, coming up short or mismatches on various fronts. Hence, free advice can turn out to be quite expensive, in more ways that one.

If one wants proper advice, one needs to pay a fee for it. And since a fiduciary puts her client’s interest foremost, the investor can have clarity and peace of mind as she can be sure of the direction she is going in.

Most good things in life cost money; you can add good financial advice to this list.

Suresh Sadagopan, founder, Ladder7 Financial Advisories

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