Ronak Morjaria of apnapaisa.com explains the differences between financial planners and agents. He elaborates the importance of financial planners to be be financially sound.
We all work hard to earn money, but when it comes to plan and grow your hard earned money; whom do you choose - Agent or Financial Planner? Even though financial literacy has been widely spread through electronic, print and television media, very few people are actually aware of existence of Financial Planners in the market.
Hence only few people must be approaching a Financial Planner for advice; and agents must be playing a major part in your financial lives for making investment decisions.
Financial Planner v/s Agent/Distributor
Financial Planner charges a fee which is in the range of Rs.15,000 – Rs.25,000 (average) for preparing a goal based financial plan for your financial future and gives unbiased advice for a certain period (usually 1 year, later on the service has to be renewed).
While an agent / distributor does not charge any fee i.e. it is absolutely free. He is paid commission by the company whose products which he sells.
Difference in Investment and Insurance Advice
Mutual Fund Investment
Financial Planner will always give advice in your interest i.e. schemes which are suitable with respect to your goal, risk appetite and time horizon, since he has charged a fee from you for giving advice.
After the introduction of direct plans in Mutual Fund from January 1, 2013, most of the planners advice direct plans, since the expense ratio is lower under direct plans, and there is no intermediary involved.
This can save upto 0.40 percent - 0.60 percent per annum on your total investment. While the Mutual Fund Distributor will not even inform you that there are such kinds of direct plans available in the market.
They will sell (so called “advice”) you the schemes, which will be beneficial for him, as these will pay him higher commission. Agents generally are not concerned with your financial goals.
Financial Planners usually calculate your insurance need based on your financial needs (goals) and existing investments (called ‘need based insurance’). Planner will review your existing insurance as well, and advice whether it should be continued or surrendered.
Planner will always recommend buying ‘online term plan’, since they are the cheapest and does not involve any intermediary. So you save a lot on your insurance premium by buying right policy and adequate cover at minimal amount.
If you already have sufficient assets and existing insurance incase of an uncertainty, which will be sufficient for your dependents then planner will advise not to buy additional life insurance. Also if you do not have any dependants, the planner will not recommend you to buy life insurance.
On the other hand, insurance agent will never consider/calculate your insurance need, never recommend you buying term insurance since the premiums are low and thus the commission he will earn on your policy.
Agent will sell traditional plans with high premiums and low insurance cover, which will earn him approximately 20 percent - 30 percent of regular annual premium. Also the agent will not bother whether you need insurance or review your existing insurance policies.
Financial Planner will recommend adequate health insurance for you and your family with a mix of individual / floater health insurance plan and a top-up plan. Top-up plan is a plan, which will reimburse hospitalization expense over and above a specified amount (called deductible).
Thus the premium is low for top-up policies. So, you can get high health insurance cover at a lower premium. Agents generally do not promote top-up plans since the premiums are low and thus the commission they earn on it is low. Agent may advice you buy different policy or increase the sum assured instead of advising top-up plan.
Financial Planner will recommend you to invest in gold via ETF (Exchange Traded Fund). The cost of investing in ETF is low compared to Gold Funds of mutual fund.
Expense ratio of Gold ETF is around 1 percent to 1.50 percent, whereas Gold Fund, which invests in Gold ETFs, bears the cost of Gold ETF as well as expense of Gold Fund of around 0.50 percent to 0.70 percent.
So the Gold Funds bear double cost and are thus expensive and this reduces the overall return of the fund. Mutual Fund distributors cannot sell ETFs, so they never recommend them.
This way you can see the quality of advice that you can get from a Financial Planner compared to any agent or distributor. The advice by a planner is totally unbiased and thoroughly researched and is in your interest.
There is no conflict of interest in the advice given by the Financial Planner. Also, the planner will present you a road map to your financial future. So, now it is time to find the right Financial Planner to plan your finances and say good bye to your agent.