Why pay fees for investment advice?

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"Your charges are way too high!" Said my client, when I recommended he get himself a plan made. Every month he would call me to ask about appropriate instruments to put his savings into. As a financial planner I know such advise based on limited information about his financial situation was not only inappropriate but could also be detrimental to his long term wealth. He however was happy that he was earning well, saving regularly and was well versed with investments and hence was ok with the current set up.

I would like to compare investor's relationship with their advisors with that of a patient with a chemist and a family doctor. You go to a doctor for advice, take a prescription to the chemist and buy a product. But hey! You need to pay your doctor a fee and plus pay your chemist a margin on the product purchased. Would it not be really smart to simply ask the chemist for a prescription? He is earning a profit from the product isn't he!

When it comes to money matters, investors seem to prefer advice from an assortment of relationship managers from their bank, their neighborhood insurance agents, brokers and even their tax consultants, whose interests do not lie in creating wealth for the investor. Rather many of these 'Commission based Advisors' push only those products that offer the highest commission to them. They have no idea about your financial situation, nor are they equipped technically to understand the many facets of wealth management. It is easy to see how most bank relationship managers have stopped selling equity mutual funds since upfront commissions have been abolished. Their focus is now on the more lucrative insurance policies, PMS or structured products where commissions/ fees are still high or unregulated.

It is therefore necessary to appoint an investment advisor who advises you based on your unique personal situation on a fee basis. Like the Family doctor who knows your unique health problems, the financial planner knows your aspirations and goals. Advise is unbiased and not commission or transaction based.

A 'do-it –yourself' when it comes to wealth management is absolutely possible for some, but for many it may be a flawed idea. Mastering personal finance requires many hours of research and learning. For most, it's not worth the time and ongoing effort.

In an increasingly complex world as your wealth grows, a financial planner having a holistic picture of your financial health will be able to bring in specialized expertise on various asset classes, tax and estate issues. He/she will help you save not just time in researching and finding out these products, but will also help you save a lot of money by avoiding investment mistakes. Financial planners can also help you remain disciplined about your financial strategies. Even if you know the basics, it's a comfort to know that you have someone keeping watch over your money. None of this can be expected from a commission based advisor whose relationship with you is purely transactional.

Appointing a financial planner is easy given that bodies like the FPSB (Financial Planning Standards Board) offer certifications and list their members online. You could also seek references from friends or family members for a good advisor.

As investors we need to move out of the old world ways of commission based selling and learn to pay for financial advice. If you are been given free advice then you are paying by buying expensive products and the cost of mistakes in wealth management is very high. There is no free lunch. 

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