HOW DO YOU CHOOSE ONE?
A few years ago, Prashant Dhamale, 27, an assistant professor of statistics at NMIMS University in Navi Mumbai, attended a couple of financial planning workshops. He was exploring the idea of hiring a financial planner for himself and was puzzled that the services being offered after the workshop like planning and product recommendation were free of cost. “I began looking for an answer to how this was possible. I realised that one of the workshops was organised by a distributor of a mutual fund company and the other was by a financial advisor who would earn a commission from the products that I would buy,” he said.
He set out to find out the commissions that an insurance and mutual fund distributor could be earning and arrived at the conclusion that he would be better off with a fee-only planner, who would only charge for the advice and not earn product commissions. “I did some calculations and realised that the commission outgo over the years would be much higher if I went with someone who is earning commissions on my investments. Also, I wanted the advice to be free of any influence from a company,” he said.
Before you avail the services of a financial planner, it is important to understand their broad business model. As Prashant discovered, there are fee-only planners who charge only for their advice and there are fee-based planners who would also earn a commission out of the products that their clients purchase based on their advice.