Who is Independent Financial Advisor
What do investors expect from Financial Advisors?
The straight-forward answer to the above question is “unbiased advice”. Investors expect advice given by financial advisors to be neutral, neutral and independent.
What do they really get from Financial Advisors?
Most investors only get “misselling” in the form of financial advice. Most financial advisors or investment agents / brokers follow commission-based models. That is, they will recommend (a sugar-letting scheme) an investment scheme and you need to invest in the scheme through them. The investment company will give them a commission. As an investor if investing in a mutual fund or insurance scheme through a financial advisor, the advisor will earn a commission from the Fund or insurance company. Who is Independent Financial Advisor
The Origin of Misselling or Biased Advice:
If the financial advisor’s income is based on the commission he earns by selling the investment product, then there is the possibility that he will ‘recommend’ the scheme where he gets more commissions. The scheme that gives him more commissions will not be very suitable for you. A very suitable scheme for you will not give him more commissions. There is a conflict of interest.
That’s why you’ll see more agents or financial advisors trying to sell ulips, where they generate about 25% to 60% commissions. For the same reason, financial advisors will not recommend your term insurance, nor will anyone talk about term insurance online. Term insurance is the cheapest form of taking out insurance. Online term insurance is cheaper 50% to 65% when compared with the term insurance that is channeled through the agent. Offlate, have you seen anyone recommend you PPF? Why? You will be able to know the answer if you check, is there a commission to sell PPF. Who is Independent Financial Advisor
Vs Engagement Independence:
If your financial advisor is a LIC agent, he or she will tell you ‘East or West, the LIC scheme is the best’. If he is a mutual fund agent, then he may tell you that the mutual fund scheme is the best. If he is a stock broker, then he will claim ‘insurance and mutual funds will not yield better results; stock trading is the best way to make money ‘. Your financial advisor should not be tied to a company or product to earn his income through a commission. If you hire a fee-based financial advisor, he or she will be tied to you because you are the one who gave him a fee. So he will not recommend your scheme with hidden charges. He REALLY recommends your scheme at low cost or no cost.
Cost Based Fees and Selected Executions:
For advice on offering a cost-based financial advisor, he will charge you and he will give you the option to carry out an investment transaction. That he will not force you to invest through him. You can get advice from him and invest directly or invest through an investment agent or broker. If you want and feel comfortable then you can invest through your cost-based financial advisor as well.
In a cost-based model, as an investor you directly pay a fee to him. So a financial advisor will really act in your best interests.
Which group are you
There are two kinds of investors. One is who really wants independent financial advice and is ready to pay a fee. The other is also wanting independent financial advice but not ready to pay the fee. So they are looking for commission-based agents to give them unbiased advice.
Cost-based suggestions will earn you money. Commission-based advice will make money for brokers. Do you want your investment to make money for yourself or your broker? Investors, who want to save costs, end up paying more than the cost in the form of hidden costs in the investment scheme.
Last but not the least: