I would like to pay fee but have some performance factor built in. I mean some basic amount but also some variable amount linked to whether I achieve my goals or not.
Anonymous
Hi, we discussed on Twitter about the same topic. Yes, that would be a good model to have where one part of fee is given for the services provided and variable component is based on a goal to be achieved, which can be performance of investment returns or even other financial planning goals.
Jig
If so, Will it be not like a PMS services where Fund Managers manages our Portfolio and promised to generate descent return. Also they are charging % out of the return and if Returns are in negative, charge Nil on yOy basis.
How different in such case Financial Advisors/Planners?
Anonymous
Jig, sorry for the delay in replying to you. This point was discussed in another comment above. I am re-posting some key points:
Sharing in profit/loss works when we are talking of purely investment advice, where return on investment is crucial. But if we talk of financial advice and financial planning which has a much broader scope, returns may not be the focal point. We know of financial planners whose clients have paid fees to them even when markets were down and the investments did not perform well. They paid the fees because the financial planner succeeded in earning his trust by keeping the client well informed, helped in making financial goals realistic, warned about the risks involved, always remained honest and transparent etc.
If the client is only looking for investment returns, then a product like PMS with performance based fees linked to returns is a good measure. But if the scope is overall financial planning then evaluation criteria has to be much broader.
I liked the video. It gets the message across in short and clear manner. Should help in changing the ” MUFT KA CHAHIYE ” attitude of the people
Anonymous
Jiza, Thanks. Yes, changing attitudes/behaviors is a very difficult task and I hope this contributes in a small way.
Guest
Why should FREE always is related to something bad. FREE can be good too as the advisor may be earning his fee from the manufacturer. You can get bad advice by paying fee too. Hence please avoid generalizations and stick to the topic.
Anonymous
Hi, this is not a generalization but a very important issue talking about conflict of interest that can arise when advisor gives advice for free and earns from commissions. Of-course, paying fees is not guarantee for getting good advice, you may even get very valuable advice for free from a friend or you can educate yourself enough to be your own financial advisor. But if financial advisor as a profession has to grow and mature, then we think a consumer paying fees for advice is much more transparent than the commission-based model which has an inherent conflict of interest. For more views, you may check this article we had written recently: http://www.jagoinvestor.com/2011/11/financial-advice-free-or-paid.html
Pooja Chaubey
If someone is giving free advice on investments I wld rather think twice is he really serious about managing my personal finance. Paying fees is a must as it brings in the seriousness for both planner n investor. As a financial advisor he should make his client understand why collecting fee is a must and we are working on his interest. We should also give him a chance to shop around and evaluate what he gets when it’s free vis a vis when it’s paid. He would realise in following parameters like service levels, response turn around times on queries asked, reports, reviews and holding hands till the end to help client attain his goals. India would take time to open up to pay fees but bitter experiences would make them shift to fee advice. Matter of time and maturity.
Anonymous
Hi Pooja,
Yes, it’s indeed a matter of time and maturity. Congrats for staring MFA office in Chennai and best wishes!
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