Should investors pay for financial advice?

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Should investors pay for financial advice?
Nothing comes free in this world!

No other impression could fit better in today's day - to - day life. With growing commercialization, everything costs you a fee. Whether it's career consultation, health consultation, legal consultation and now financial consultation has joined the league.

Not long back, even today, many people are there in the market who call themselves financial advisors and offer free financial advice. You must be wondering if that option is available, then why you should add an additional burden on your financial life by opting for paid financial advisory services.

Let us discuss this issue, which is becoming a concern for most of the middle class people. You must have looked at three types of compensation arrangement with regard to financial advisory. The first situation is one where the financial planner appears to be offering you advice for free. However, don't you think this is too good to be true! There are no free lunches in the world.

Advisors, in this category typically get huge commissions from the companies, whose products they sell to you. Common sense will tell you that with these advisors, your interest will be neglected. You will end up investing in the products which pay your so called advisor a good amount of commission. Another issue with this kind of arrangement is "churning", which refers to excessive trading in a client's account in order to earn more commissions. If you are thinking about using a commission-based adviser, think about the effort you put in to earn your money and decide whether that money deserves such treatment!

Second situation is, where advisors work on profit - sharing basis. Sounds good as advisors will try to fetch maximum return on your portfolio, which will entitle them to good earning as well. Still, don't ignore the fact that only profits are shared by them, the burden of losses will be entirely on your shoulders. I am sure all of you are aware with the risk - return matrix. Higher the risk, higher would be the probability of returns. This arrangement might be advisable for an investor whose risk profile is aggressive, but at the same time, a strict NO for conservative and moderate investors.

The third type of arrangement is, where advisors offer an unbiased advice against a fixed fee. Their source of remuneration is only the fee charged by the clients. They offer financial advice that suits the client in the best manner. A good financial advice is a lot more than suggesting high - return investment avenues. It includes adapting a holistic approach and suggesting the client investments which fit his/her risk profile and help to achieve financial goals in life.

However, it is very unfortunate that people shy away from paying for genuine financial advice, which ultimately leads them to pay a much heavier price. Just imagine will you ever be ready to work for something where you are not able to fetch any money. I am sure you won't.

Then why do you mind paying for something that is for your own good. Think again and broaden your mind-set. Finding a right financial planner and engaging him with your financial life can be the best gift you can give to your family. All good things come for a price, do not hesitate with the fact.

Read more about: investors
Story first published: Saturday, April 27, 2013, 10:02 [IST]
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