Fee or Commission – Distributor or Adviser

September 25, 2015, Chennai

Ads after article title

                                 

 

 

Water – water everywhere but not a drop to drink! The plight of a sailor stranded in a life boat in the middle of an ocean is no different than the common investor in India.

So many products and advisers but where is the real advise?  
Recently one of my clients brought her young daughter to my office during one of her visits. Her first statement was – ‘When we were young there were no advisors, as a result we are struggling even now. I do not want her to go through the same. I want her to be financially free by the time she is forty and not depend on any one for that’. The daughter has just started earning and the mother wanted me to take her under my guidance.
It is a delight to see the Indian investor being so vigilant about the changes in the industry and the youngsters being positive and disciplined about the future. But the task of choosing a financial planner and adviser can be somewhat daunting. However, it is one of the most important decisions a person can make. An adviser is a professional who should be qualified, trained and experienced and who inspires trust and demonstrates the highest level of competence and integrity. His or her role in a family’s finances is as crucial as that of a family attorney. 
The dictionary meaning of ‘adviser’ is ‘someone who advises’ in a particular field. (Not sell a certain product).  Until the multinationals entered the insurance space the LIC advisers (?) were called only that- LIC Agent. Till the creativity kicked in personal finance industry and Insurance agents became first insurance advisers and mutual fund distributer became financial adviser. Insurance advisers were than promoted ad financial planners, who were still doing the selling insurance policies but in a slightly different garb. 
So what is the difference between an agent / distributor and an adviser/ consultant? So what is the difference between the two? An agent or distributor earns his bread and butter from commissions and brokerages and the adviser will earn his bread and butter from the client as fees.
People are made to believe that an insurance agent is a specialist in insurance. He / she may be very well aware of the policies offered by his / her company, but is not an expert in analysing the client’s situation. Most of the times he cannot comprehend the real numbers behind it either.  Moreover he earns his livelihood from the products that he sell. Will you trust the chemist for what medicines can be taken or will you trust a doctor for that? The same is true about a mutual fund distributor. 
A true financial adviser will work for the client and not make money by distributing the products. He / She should advise after understanding your risk tolerance and goal and should meet all your needs over your lifetime. If you are his bread giver, his honesties will lie with you and not with the product commissions.
In other words, you want an advisor who gets paid for doing a good job for you, not for selling particular products.
Until recently it was very difficult to differentiate between an adviser and distributor. SEBI’s recent rules have made it clear that only those who want to advise the clients need to be registered with SEBI as an Investment Adviser. His / her source of income can only be the cline and not an AMC or Insurance company. 
When planning for your financial future, seek out a financial services provider that can help you create a broad investment framework that takes into account fee-based investment services, banking, trust and insurance. The result will be a comprehensive, neutral, customer-oriented approach that puts you in control of the “big picture.”
Planners who are paid on a fee basis are better positioned to advice customers about investment options from an objective and neutral viewpoint than those who are inclined to recommend those investments that offer them the highest commission.
A financial planner can focus on an individual client’s needs rather than be motivated to sell a particular commission-rich product. This neutral approach begins with the BluePrint financial plan, a comprehensive product-neutral procedure that moves from an objective analysis of an investor’s current situation and long-term goals to a practical strategy to meet those goals.
Ask your adviser his credentials and sources of income. And remember there is no free lunch! If something sounds too good to be true, the probability is, it is not true. Invest direct and pay your adviser his / her fees. You do not expect your attorney to provide free of charge service, why do you want the adviser to advise you for free. Consumer greed is the biggest psychological reason behind all the misspelling.

Water – water everywhere but not a drop to drink! The plight of a sailor stranded in a life boat in the middle of an ocean is no different than the common investor in India. So many products and advisers but where is the real advise?  

Recently one of my clients brought her young daughter to my office during one of her visits. Her first statement was – ‘When we were young there were no advisors, as a result we are struggling even now. I do not want her to go through the same. I want her to be financially free by the time she is forty and not depend on any one for that’. The daughter has just started earning and the mother wanted me to take her under my guidance.

It is a delight to see the Indian investor being so vigilant about the changes in the industry and the youngsters being positive and disciplined about the future. But the task of choosing a financial planner and adviser can be somewhat daunting. However, it is one of the most important decisions a person can make. An adviser is a professional who should be qualified, trained and experienced and who inspires trust and demonstrates the highest level of competence and integrity. His or her role in a family’s finances is as crucial as that of a family attorney. 

The dictionary meaning of ‘adviser’ is ‘someone who advises’ in a particular field. (Not sell a certain product).  Until the multinationals entered the insurance space the LIC advisers (?) were called only that- LIC Agent. Till the creativity kicked in personal finance industry and Insurance agents became first insurance advisers and mutual fund distributer became financial adviser. Insurance advisers were than promoted ad financial planners, who were still doing the selling insurance policies but in a slightly different garb. 

So what is the difference between an agent / distributor and an adviser/ consultant? So what is the difference between the two? An agent or distributor earns his bread and butter from commissions and brokerages and the adviser will earn his bread and butter from the client as fees.

People are made to believe that an insurance agent is a specialist in insurance. He / she may be very well aware of the policies offered by his / her company, but is not an expert in analysing the client’s situation. Most of the times he cannot comprehend the real numbers behind it either.  Moreover he earns his livelihood from the products that he sell. Will you trust the chemist for what medicines can be taken or will you trust a doctor for that? The same is true about a mutual fund distributor. 

A true financial adviser will work for the client and not make money by distributing the products. He / She should advise after understanding your risk tolerance and goal and should meet all your needs over your lifetime. If you are his bread giver, his honesties will lie with you and not with the product commissions.

In other words, you want an advisor who gets paid for doing a good job for you, not for selling particular products.

Until recently it was very difficult to differentiate between an adviser and distributor. SEBI’s recent rules have made it clear that only those who want to advise the clients need to be registered with SEBI as an Investment Adviser. His / her source of income can only be the cline and not an AMC or Insurance company. 

When planning for your financial future, seek out a financial services provider that can help you create a broad investment framework that takes into account fee-based investment services, banking, trust and insurance. The result will be a comprehensive, neutral, customer-oriented approach that puts you in control of the “big picture.”

Planners who are paid on a fee basis are better positioned to advice customers about investment options from an objective and neutral viewpoint than those who are inclined to recommend those investments that offer them the highest commission.

A financial planner can focus on an individual client’s needs rather than be motivated to sell a particular commission-rich product. This neutral approach begins with the BluePrint financial plan, a comprehensive product-neutral procedure that moves from an objective analysis of an investor’s current situation and long-term goals to a practical strategy to meet those goals.

Ask your adviser his credentials and sources of income. And remember there is no free lunch! If something sounds too good to be true, the probability is, it is not true. Invest direct and pay your adviser his / her fees. You do not expect your attorney to provide free of charge service, why do you want the adviser to advise you for free. Consumer greed is the biggest psychological reason behind all the misspelling.