We all work hard to earn money, but when it comes to plan and grow your
hard earned money; whom do you choose - Agent or Financial Planner? Even
though financial literacy has been widely spread through electronic,
print and television media, very few people are actually aware of
existence of Financial Planners in the market.
Hence only few people must be approaching a Financial Planner for
advice; and agents must be playing a major part in your financial lives
for making investment decisions.
Financial Planner v/s Agent/Distributor
Financial Planner charges a fee which is in the range of Rs.15,000
Rs.25,000 (average) for preparing a goal based financial plan for your
financial future and gives unbiased advice for a certain period (usually
1 year, later on the service has to be renewed).
While an agent / distributor does not charge any fee i.e. it is
absolutely free. He is paid commission by the company whose products
which he sells.
Difference in Investment and Insurance Advice:
Mutual Fund Investment
Financial Planner will always give advice in your interest i.e. schemes
which are suitable with respect to your goal, risk appetite and time
horizon, since he has charged a fee from you for giving advice. After the introduction of direct plans in Mutual Fund from January 1,
2013, most of the planners advice direct plans, since the expense ratio
is lower under direct plans, and there is no intermediary involved. This can save upto 0.40 percent - 0.60 percent per annum on your total
investment. While the Mutual Fund Distributor will not even inform you
that there are such kinds of direct plans available in the market. They will sell (so called “advice”) you the schemes, which will be
beneficial for him, as these will pay him higher commission. Agents
generally are not concerned with your financial goals.
Life Insurance
Financial Planners usually calculate your insurance need based on your
financial needs (goals) and existing investments (called ‘need based
insurance’). Planner will review your existing insurance as well, and
advice whether it should be continued or surrendered. Planner will always recommend buying ‘online term plan’, since they are
the cheapest and does not involve any intermediary. So you save a lot on
your insurance premium by buying right policy and adequate cover at
minimal amount. If you already have sufficient assets and existing insurance incase of
an uncertainty, which will be sufficient for your dependents then
planner will advise not to buy additional life insurance. Also if you do
not have any dependants, the planner will not recommend you to buy life
insurance. On the other hand, insurance agent will never consider/calculate your
insurance need, never recommend you buying term insurance since the
premiums are low and thus the commission he will earn on your policy. Agent will sell traditional plans with high premiums and low insurance
cover, which will earn him approximately 20 percent - 30 percent of
regular annual premium. Also the agent will not bother whether you need
insurance or review your existing insurance policies.
Health Insurance
Financial Planner will recommend adequate health insurance for you and
your family with a mix of individual / floater health insurance plan and
a top-up plan. Top-up plan is a plan, which will reimburse
hospitalization expense over and above a specified amount (called
deductible). Thus the premium is low for top-up policies. So, you can get high health
insurance cover at a lower premium. Agents generally do not promote
top-up plans since the premiums are low and thus the commission they
earn on it is low. Agent may advice you buy different policy or increase
the sum assured instead of advising top-up plan.
Gold Investment
Financial Planner will recommend you to invest in gold via ETF (Exchange Traded Fund). The cost of investing in ETF is low compared to Gold Funds of mutual fund. Expense ratio of Gold ETF is around 1 percent to 1.50 percent, whereas
Gold Fund, which invests in Gold ETFs, bears the cost of Gold ETF as
well as expense of Gold Fund of around 0.50 percent to 0.70 percent. So the Gold Funds bear double cost and are thus expensive and this
reduces the overall return of the fund. Mutual Fund distributors cannot
sell ETFs, so they never recommend them.
This way you can see the quality of advice that you can get from a
Financial Planner compared to any agent or distributor. The advice by a
planner is totally unbiased and thoroughly researched and is in your
interest.
There is no conflict of interest in the advice given by the Financial
Planner. Also, the planner will present you a road map to your financial
future. So, now it is time to find the right Financial Planner to plan
your finances and say good bye to your agent.
Published in: Moneycontrol.com
