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Business News/ Opinion / Columns/  How to select an Hourly-Fee Financial Planner

How to select an Hourly-Fee Financial Planner

Read the RIA’s website and articles to shortlist three that will speak to you

Photo: Mint Premium
Photo: Mint

The Securities and Exchange Board of India (Sebi) believes there is a conflict of interest involved in distribution (i.e., earning a commission from selling) of any financial product such as mutual funds (MFs). For example, an MF distributor may find it extremely difficult to resist selling an MF that pays 10 times the annual commission (e.g. 1% per annum), compared with another MF’s annual commission (e.g. 0.1% p.a.). Hence, Sebi created a category called Sebi-registered investment advisers (RIA) in 2013. RIAs charge clients a fee and, ideally, they should not earn any commission. So, and on average, an RIA should have lesser conflicts of interest than an MF distributor. You or your spouse are likely to engage with an RIA at some point in your lifetimes. Hence, it is important to understand some nuances about RIAs.

Fee-Only Financial Planners

You should insist on these three basics. First, the RIA should be registered with Sebi, and you can check the same on Sebi’s website, which lists all RIAs. Second, there should be a written agreement between you and the RIA. This agreement should clearly state that the RIA will not earn any commission from any financial product. Such a blanket statement covers MFs, insurance investment products, portfolio management services, etc. Third, let’s focus on RIAs that in addition to providing investment advice also provide financial planning services. These are fee-only financial planners. There are roughly 125 fee-only financial planners which charge fees that are a percentage of the client’s assets under advice. The fees typically range between 0.25% and 1% a year. RIAs that follow this fee structure describe themselves using the generic term ‘fee-only’.

Fee-Only (Advice-Only) Financial Planners

Fee-only (advice-only) financial planners charge hourly, similar to how professions such as lawyers and doctors charge their clients. Since this model is at a nascent stage, most of these RIAs charge a fixed amount so as to keep the fees simple. For example, total fees of 50,000 during the first six months of the engagement and a total of 10,000 for each additional six months that the client renews the engagement. If the total fee is more than 50,000 during the first six months of the engagement, then the RIA is likely to explicitly specify the number of hours of effort so as to explain the higher total fees. Due to the effort required for generic research, regulatory overheads in time and cost, various taxes, etc., the hourly fees are likely to increase at more than the rate of inflation.

Variation between Advice-Only Financial Planners

There are various websites listing fee-only and advice-only planners. However, such advisers themselves differ significantly in three important ways. First, a few RIAs focus on high net-worth individuals who are willing to pay a higher fee to go into more details and to learn the nuances of personal investing. While other RIAs focus on relatively lower net-worth clients who want a low total fee and, hence, the number of hours of effort by the RIA have to be minimized. Second, a few RIAs spend more time on research, allowing them to focus on clients that are knowledgeable about personal investing. Other RIAs have the patience to guide clients that are less knowledgeable about personal investing. Third, a few RIAs are open to additionally engaging with clients in the US, etc., where taxation limits the set of suitable Indian investment products. Read the RIA’s website and articles to shortlist three that will speak to you. Then go with your gut feeling about the one RIA that you will formally engage with.

I have provided a list of two advice-only financial planners to my spouse (and my clients) for them to formally engage with in case of my death. You could do the same.

Avinash Luthria is a Sebi-registered investment adviser and advice-only financial planner at

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Published: 15 Mar 2021, 05:39 AM IST
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