I’m just working through my inbox and at least 200 emails are still pending, with people asking me what I suggest they do about their policies. The requests come with a varying degree of detail, some with details of how much has been invested and what the current value is, and others simply saying they bought such-and-such ULIP, and should they continue.
My answer till now has been a canned “Please contact a financial advisor” reply, primarily because I don’t have the time to help each person individually. It takes between 15 minutes to an hour to research and understand what a person has done, and then perhaps longer to work out what that person actually requires – there is no one-solution-fits-all.
In this context, I wonder if my reply is useful. Most “advisors” are not really advisors, they are product distribution agents. They don’t really want to work to the benefit of the customer. They only want to sell a product. How do you find out if an advisor is truly working for you?
I can suggest that you tell him you will only pay him for his advice. But you will buy products from someone else. (say a family member is an agent or something). The reaction will tell you if the person cares – if he quotes a price, and says ok, he’s probably honest. If he refuses for any reason, then he doesn’t want to represent you – just the end customer.
Advice can be at various levels, from “what should I do with this product?” to a full investment plan containing goals, allocations and tracking. At a cost level, I imagine that a service can cost:
This I imagine would apply to portfolios involving just mutual funds and insurance. It’s more complex if you add stocks, bonds and all that.
But the real question is – will people pay? I think the cleanest and most honest method is only if the customer pays for advice. The cost should not be a percentage of investment – advisors don’t work harder for 5 lakhs invested versus 1 lakh. And the advisor should not require the customer to buy the product from him – one way is to mark mutual fund investments “DIRECT”.
When I ask this: I have got multiple responses – most people say “No”, most advisors say No, and some others do say yes. While I’ve evaluated some business plans that specifically charge the customer, I’m not sure that will work. So I thought I’ll ask you – will you pay for such advice with the above prices?
Please comment below or mail me at deepakshenoy [at] gmail.com. I appreciate all responses.
There are multiple reasons for this question – one, to understand if there is a business model in providing advice at a cost; I am interested in this space, and any responses will help.
Another reason is to help honest advisors understand if there is a business model too. A lot of smart individuals run away from this field because the economics don’t make sense, unless they get commissions. Charging customers is something people shy away from. It’s also less effort to get commissions, you don’t have to make a detailed financial plan, etc. – but if there is decent monetary reward, there is space for a cleaner and better business model.
Also, there’s a way to leverage technology in this space. Like auto-calculating where one should be, tracking and maintaining portfolios, providing investment feedback, decoding ULIPs. But till now all such services are free, and that model makes me cringe. Free is good, but free does not sustain; but if there is willingness to pay a cost for a complete package, then the technology will help in lowering the cost of delivering the service. I’m a tech person, and I can see how technology can help this space – but if the only expectation is to get this for free, then why bother.
Lastly, paying for advice allows people to rate a product negatively. Advisors usually know which product is horrible and which is good. As a private distributor of mutual funds (something I set up only for family stuff) I get emails of sudden 2% commissions “just for this month” etc. The minute I get this, I know the product is screwed up, because they will somehow extract that commission from the product. But will an advisor tell a client this, if his biggest source of income is commissions?
Note: there still needs to be hand-holding for people who don’t know where else to buy products. But there are many “honest” places nowadays – from online brokers to “DIRECT” investments.