Free Advice - Is it Always Good?

Our Love for Free stuff.

We Indians are prone to free advice. I’m not sure about the advice culture prevalent in the rest of the world but I’m pretty sure about us. We ask our friends which phones to buy. We consult our relatives before buying a property. We even ask our friends which movie to watch this weekend. But has it ever happened to you that your friend watched the movie and enjoyed it too much, that he suggested you to watch it and when you watched it, you were disappointed?

What is the point?

Let me stop beating around the bush and jump to the point. Who do you ask for advice when it comes to the investment of your surplus fund? While this is not limited to Investment only but Financial Planning as a whole, but I am specifically asking for Investment because the Financial Planning culture is not yet prevalent in India. So, what will be your answer? Friends, Relatives, Parents, Co-Worker, Employer, or any other persons. Is it anyone from the above mentioned or anyone related to the above-mentioned group? If yes, then your habit of asking for advice for money-related problems will put you in deep trouble.

While it is okay to take home remedies in a common cold but when it stays for a longer time than anticipated you consult a doctor because you know doctors are trained for this. You think it is better to consult a doctor than asking someone for medicines who recently suffered this cold.

It’s time we say goodbye to this culture of asking for advice when it comes to Money. Your money which you have earned working day and night, in and out. Some may even invest their money in the products that an agent of that product “ADVISES” you to. While you may not pay him for his valuable advice on where to keep your money. But there’s a quote,

“IF YOU ARE NOT PAYING FOR THE PRODUCT, THEN YOU ARE THE PRODUCT”

You may have not paid for the advice and just paid the money that you want to invest, there is an undisclosed amount of money (commission) that will be credited to the person advising (selling) you the product. Now how does it affect you?

Conflict of Interest in Free Advice

Due to the undisclosed amount that the agent gets, (it remains undisclosed in many cases, rarely does an agent tells you about what he/she will get from it), there is a prevalent conflict of interest for suggesting you the product that the agent earns more from. I can’t guarantee you that this always happens this way but l also cannot guarantee you that there is no conflict of interest. I can give you a simple example of this practice. If someone suggests you a mutual fund for investment and the scheme name or plan name does not contain “DIRECT PLAN” anywhere, then the person suggesting this gets a commission for the amount you invest. And sometimes that product or investment type will only be suggested to you because it pays your agent more and not because it is good for you.

So, does it happen to you that whenever you meet an advisor and out of nowhere you get to hear the number of fees billed to you for the advisory service you get a mini attack, a shock-like feeling? It’s because we aren’t accustomed to paying for advice. And like I said earlier about agents, I also cannot guarantee you that the advisor charging you for his advisory service doesn’t get a commission on suggested products. The simple rule is to check what you pay for. Clear all the conflicts of interest that may or is going to appear in the course of the client-advisor relationship.

Why should I pay someone for giving me advice on what to do and where to keep my money?

So why is it profitable to pay advisory fees rather than getting advice for free?

One, there is no conflict of interest hidden for the product that the advisor suggests you and, in most cases, the advisor doesn’t get a commission for the products suggested. So, the product suggested to you is for you and only your benefit and not for the purpose of earning from it. The advisor gets the money from what you pay. So, the products suggested to you don’t benefit the advisor.

Two, the advisor that charges you money is well profaned, well trained in the field they work. They are well versed with the excellence of suggesting to you what is beneficial to you and not just for their own good. I don’t mean to say that there is no conflict of interests involved but what I mean is you are more likely to benefit from the services of an advisor than from an agent.

Also, the advisor is trained for all-round financial services and advisory so you don’t need to run for agents for Mutual Funds, Insurance, Tax Planning, Investment Advisor, Equity Broker, Loans separately. You get the benefits of all-round financial advisory from one advisor. All your financial needs are taken care of in one place. From your expenses to your surpluses, from your debts to your investments, from your short-term goals to long-term goals.

How Financial Advisory is Good for me?

Financial Advisory is like a tailor-made suit for you. It suits you perfectly! Unlike ready-made suits which are made for common measurements and are prepared with a large group of people in mind. While it may suit someone, it may not suit someone. But in tailor-made suites, it is prepared to suit your and your needs only and thus will give you an extra level of comfort. Likewise, Advisory Services are provided to you to suit your needs and requirements and thus will be more beneficial to you.

So, to cut this short, what I am trying to say is Advisory is always better for you and not just Investing in products that someone suggested. You have to pay for this service but it is for your benefit only. Free Advice can be good but, in this context, Products or Investments suggested to you without charging you any fees of some sort is a vice and it carries a hidden price that you will pay in the future.

I will end this with this here,