The Value of Advice: Why Should I Pay Fees to My Adviser?

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By Licensed Adviser


The ancient and very wise Chanakya is known to have said:

One who wishes to have milk, would not buy an elephant.

This is sage advice in general, but also very relevant when it comes to making investments. Simply put, only our goals, or objectives can define whether or not our investments are successful – not whether our portfolio is beating the market index. For some people who’ve already set aside enough to meet life’s needs, the goal is simply to make the best possible return. But for most of us, goals like children’s education or retirement take priority.

Also, these goals may seem similar across investors, but can vary significantly in execution. For two people in the same age group and earning bracket, the capacity to save and take risk can be very different. And this would make one set of investments unsuitable to both.

Investing is thus a very personal, need based project, and can vary vastly across people and families. Our personal constraints play an important role in defining the required rate of return, risk capacity and tenure of each investment. And only after understanding these constraints can we select products that match them and will still help us meet our goals. 

Doing this requires time, expertise, and personalised investment advice. The question then becomes: is this kind of professional, personalised advice available for free?

What is the value of advice?

For most of us, investing in products comes first, based on advice received from distributors or bank relationship managers. We only start to assess their impact on our goals much later. The distributors may be experts in a specific product, but their free services do not include studying our financial situation or investment portfolio as a whole. They are also not bound by any contract or regulation to recommend investments that are in our best interests. Which means, their recommendations may be biased by how a certain buy or sell transaction will affect their commissions.

We interviewed SEBI Registered Investment Advisers (RIAs) from across India to better understand how a fee-based adviser is different. We also asked them how investors can judge whether or not to pay fees to their advisers. Most agreed that this is still a new concept for Indian investors and will face resistance for some time. When asked how they would describe the value of the services they offer, this is what they had to say:

Renu Maheshwari, Finscholarz Wealth Managers, Chennai

The first thing I tell my investors is that there, really, cannot be any free advice. If an adviser is exposed to a conflict between his/her earnings and client’s long term financial well-being at any transaction, they are bound to choose their income over the clients’ at some point. Second, as advisers we do not chase volumes (like distributors), because we do a lot more than execute transactions. Financial planning takes effort and expertise, and is a long-term relationship with the client.

Amit Kukreja, Amit Kukreja Advisory, Gurugram

I always start by explaining what it is, exactly, that a fee-based RIA offers them: an RIA will minimise their investment costs with no-commission products, maximise their returns with qualified advice, and focus only on ensuring that they meet their goals in the targeted time. Since these are medium to long term objectives, I, as an investor, have to be able to trust the RIA every time he or she recommends an action on my portfolio. And I can have that trust only if I am the one paying the adviser directly for their services. 

Nitin Sawant, NS Wealth Financial Planners, Pune, Sangli, Satara

Investors who ‘buy into products’ without a clear financial plan have no guidelines on how long to hold or how much return is enough for them. They will buy and sell based on fear or herd mentality, and in the long term, may lose out on important life goals. As an adviser, I collect detailed data on my clients’ financial lives, right down to their grocery expenses. I understand their life goals, their priorities, and give them a clear plan. If they follow this plan consistently, they will always achieve their goals.

Trupti Muralidhar, BITS Portfolio, Navi Mumbai

I think we’re in the midst of some interesting changes in the Indian market as a whole. As our capital market is maturing with more investors coming in, the products are changing as well, and becoming more complex. The race to make higher returns is not as rewarding as it was. All of this is driving greater focus on the role investment advisers can play, the value they can add.

Adityavikram Dubey, Qber Asset Advisors, Mumbai

For me, this is a simple matter of looking at the returns on their portfolio. Portfolios of DIY investors, or even investors who go by the advice of multiple product distributors, tend to show a higher number of assets in the red or with less than average returns. Once I am able to explain what a qualified, fee-based adviser would have done differently, clients start to see the value of having an adviser who is transparent, and whose only objective is to help them meet their financial goals.

Hear more from the RIAs themselves in our video series!

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