Who is your financial planner?

Until now, most investors used to focus exclusively on making investments in various instruments, such as mutual funds, insurance, gold, etc. This was almost never supported by financial planning thinking. Now, however, many of them seek to create a financial plan that guides them on how much to save and helps them select the right investment instrument to channel their savings. This is done after a detailed study of your existing investments, income, expenses and risk profile.

Financial planning has become a buzzword today.

In recent years, and especially after SEBI banned mutual fund entry charges almost a year ago, there has been a sea change in perception about financial planning, both in the minds of investors and service providers. And thanks to the media for the awareness created, as most investors now seem to understand the concept (albeit vaguely).

Today, almost everyone in the financial services industry claims to do financial planning.

In fact, major banks, brokers, and distributors of financial products have opened departments or divisions that deal specifically with financial planning.

So, let’s understand the different types of service providers involved in this activity:

Banks: They are the most ubiquitous. They offer you everything from opening a bank account to remittances, investments and now they also help you get a financial plan.

Brokers / Distributors: They offer stocks, mutual funds, insurance, postal schemes, fixed income products, etc. Your neighborhood mutual fund distributor, insurance broker, and the largest private distributors nationwide are in this segment.

The biggest focus of banks and distributors is to sell (and not advise) their financial products, so that they can earn commissions on those products. In fact, they have been cases of improper sales, in which the broker protects his interests (through commissions) first rather than those of the client (wealth creation). Why? Because you, as investors, have fallen in love with the one-stop shop for solutions, which encourages you to present yourself as financial planners. It can add a lot of value to investors’ perception, but the focus on your financial health isn’t much. Most of the time, this service is offered free of charge, as you are expected to buy financial products from them. Financial planning is not your area of ​​focus. It is a means of achieving your goals of selling financial products and earning commissions.

Pure Fee based planners: A couple of years ago there weren’t many fee-based financial planners in the country. But since then many people and companies have emerged on the horizon, especially in the larger cities, where awareness of the concept is best. Now they take the business model of offering purely fee-based financial planning services very seriously. Well, some of them are well known and some are not. Thanks to their knowledge of financial planning education, most of them have also acquired the Certified Financial Planner (CFP) label.

Service providers offering both services: Obviously, these service providers offer financial planning and distribute financial products like mutual funds, insurance, stocks, etc. Financial planning becomes a vehicle they use to distribute their products. Many brokerages have become planners.

Financial planning fee:

The financial planning industry has not yet come to terms with charging for the service. While some that offer only planning services charge a fee that can range from Rs. 5,000 to Rs. 50,000 and sometimes more, there are others who charge as a percentage of the assets you invest through them, which usually ranges from 1% to 2.5%. While others have a mixed fee model and charge you a flat fee for a plan and then an investment fee on your investments.

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