The last discussion we had on the cost of a financial product prompts me to ask the question today – how much should financial planners charge fees for financial planning of their clients ?
In India, there are different charges which financial planners levy as financial planning fees and they vary by a great margin. It is confusing for the investor to understand why this is the case and what value added services are offered by the financial planner.
Financial Planning Fees
But who is to blame ? Whowill make things clearer in such a scenario? Is it the investors responsibility or the planners to make things easier for everyone ?
We need some solid arguments if you say less than Rs 10,000 or Rs 5,000. Try to calculate with those figures how much a CFP will earn and whether in today’s world – can he survive. Is this a volume based game ? Are you standing in Big Bazaar wanting to buy pickles ?
Try to check what you will lose if you buy a crap product from an agent; see how much you lose when you buy and sell stocks recommended by your relationship manager. Just decipher how much you will have to pay per month if you go to a CFP who will make your financial life healthy and then answer the below poll.
And if you think you can do this yourself, then that would be great. You are possibly giving me a run for my money!
I know people are going to have strong views here. Please justify your comments in the comments section as to why you chose your answer.
Financial Planning Fees Poll
@Radhey,
My vote goes to Between 5000 and 10000. I think this is fairly priced. However the CFP and the customer can also agree on a percentage of commission on profits earned over and above the base rate of returns.
@Rakesh, You need to explain why the price is fair ? What makes you say that ? Will you increase the price is commission on profits ins not talked about ? By how much ?
@Radhey,
I just gave a fair assumption. Ofcourse i need to check what all things are involved in the same. I was talking on my point of view as i am fairly financially stable right now and if i need to approach a CFP i am willing to give between 5000 -10000.
Yes, if commission is not talked about then i can increase the price to 15,000 but then again there is no guarantee whether i would earn more returns that’s why i was willing to give a percentage of commission.
@Rakesh, CFPs don’t guarantee returns – so in 2011 when the stock market returned -25%, how much a CFP stand by his promise ?
CFPs are not stock brokers.
But they do ensure that you can meet all you goals by investing in the right products. When you do that, you get more returns !
@Radhey,
I was talking about long term returns and not short term. At least the CFP’s can pick a product which can outperform other investments in the long run which in turn helps to achieve your goals faster.
@Rakesh, Hmmm .. interesting point on having a combination of fixed price and commission on profits. I’d like to hear CFPs viewpoint on this.
But again in this scenario should a CFP also share losses? 🙂
@Vivek,
For eg. If I earn 15% on my investments and if my CFP generates a returns of 20% on his recommended investments then i am willing to share the additional 5% of the profit.
Not sure on the sharing of Loss though, maybe Radhey could comment.
@Rakesh, I think it’d be fair to share profit on the overall 20% profit.
You go to a person for advice and you earn profit, you share the percentage on overall profit. You should not say I’d have earned x% myself so I will give you share on y-x, that’s stingy man !
@Vivek K, I am not aware of CFPs taking a cut on returns guys.
At the most they might get into commissions which investors will anyway give away to someone else but they don’t generally share profits on returns.
@Rakesh, I don;t think this sharing of extra returns is very healthy.
We need to differentiate what a CF does and what a stock broker does.
@Radhey,
I am not comparing both of them, they are two different entities. If a CFP is able to recommend products which beats my basic expectations of returns then i am willing to share the proceed of the same. I don’t think there is anything wrong in it.
@Vivek K, Many CFPs do that Vivek but I don’t think losses are talked about.
The modus operandi is that one cahrges less for the products and then earns through commissions.
@Radhey, Sir ji I didn’t understand the difference between last 2 options: –
– Less than 10k
– Between 5-10k ..?
@Vivek K, Just corrected the answers, try now and give justifications.
@Radhey Sharma, I still see both the options as it is, they are just swapped. Do you mean less than 5k?
@Vivek K,
This is what you shoudl see – try a new browser –
Less than Rs 5,000
More than Rs 15,000
Between Rs 10,000 and Rs 15,000
Between Rs 5,000 and Rs 10,000
@Radhey Sharma, Cool, got it now. Less than 5k should be out of question but let’s see what voters have to say 🙂
@Radhey,
I think you should remove the option “Less than Rs. 5000”, i don’t think that option qualifies, its way to less.
@Vivek K, 25% of voters say less than 5k, how interesting !!
I think after the poll Radhey may have to revisit his fee structure .. 😉
@Vivek,
It could also be people clicking the same option multiple times. I did it few times but my option was for between 5k – 10k
I am assuming that the fee is charged for one time comprehensive financial planning which includes retirement planning, tax planning, asset allocation, real estate planning etc.
My vote goes to “Between 10-15k”.
However, I think the fee cannot be same for all the clients. The way there is no single solution for all clients, it has to be customised. In the similar manner the fee has to be customised as well depending on the amount of work and planning required.
The perfect solution in my eyes would be to have a fixed fee for analysis and design of a portfolio. In addition to that there should be a cut of profits earned, say around 5%. This is fair to both parties because client don’t want to spend 10-15k and then suffer losses. On the other hand client should not spend 10-15k and keep huge profits to himself/herself.
The cut in profits will increase the competition and strive to be the best in the market. The business will be purely based on the results and not on marketing and advertisement. You help me make money; I give you a share and help in getting more clients by word of mouth and positive feedback. You don’t help me make money; I don’t help you in getting any more business.
Is it a fair model to create a win-win situation for both the parties?
My vote goes to 5k-10k band. I choose this because :
1. The most important thing is the mindset we all carry. Advices have always been FREE thoughout our life and paying for this may not be instantly convincing. This is for 90% people of the people who have still not started with finacial plannings
2. The reputation and trust one carries. Just like how LIC works. Starting with small fees to gain trust will be a good idea for budding CFP’s. Later, with perfomance people will flock even if they charge a bomb
3. Awareness – Not all are aware of the value add provide by CFP’s but are fully convinced why they need an expensive auditor.
4. Charges should be based on income bands. It may not be advisble to fix charges for all category of incomes. If charged higher say 10-15k, this should include atleast 1-2 revisions based on market situation, this gives you more comforts.
@sapna, Thanks for this input. Looks to me the most thought through answer.
But how long do we have to wait for the price to increase – its already been so looooong 🙂 !!
Charging on salary bands is a great idea. What would you recommend for the charges to be for different salary ranges ?
I also agree that many people do not know and realize the value additions CFPs brings.
A 0.5% of the annual income is what I think is reasonable. This can be further increased over a years time. Salarys obviously would increase
@Sapna,
0.5% of annual income as fees would not be reasonable for all tax slabs. For eg if a person is earning 10 lakhs p.a then the fees would turn up to Rs. 5000, however if a person is earning 2 lakhs then the fees would be only Rs. 1000.
@Rakesh, So what would you suggest Rakesh ?
@Radhey,
After a healthy discussion with other members and reading their views, my take would be Rs. 10000.
You also ruled out sharing of profits option.
@Rakesh, I’d have to disagree on having a flat 10k rate for all. If a person with 4-5 lakhs of income wants to approach a CFP then this 10k amount is discouraging whereas another person earning 10 lakhs would be ok with this amount.
The fee has to be either based on annual salary and/or amount of work required for planning. Also, you can’t keep salaried class, business class, doctors etc in the same fee band.
That is more or less my point. A person who is earning 2-5 lakhs may approx. save 30-40% of their sal. Tax planning and savings is what they would do by default. CFP in my understanding may play a part when people have a reasonable amount in hand and rely on best advises for investing. You would probably know the trend of the class of people approaching CFP’s. Let us know ur thoughts.
@Sapna,
Agree that more people with the salary of Rs. 10 lakhs and above would approach CFP but then there could be youngsters who are drawing Rs 2 lakhs – 5 lakhs and would like to have their finances in order at a very early age could also approach a CFP.
Radhey would be in better position to tell us the figures.
@Rakesh, So you think it is ok for that youngster to pay the same amount of fee as another experienced person drawing more salary?
@sapna, Good reasoning Sapna. You have raised a very valid point that we Indians are habitual of getting and giving free advise. How mature the young generation will be and would they realize the value add of CFP or not, we have to wait and see. But good to know that you are willing for financial advise. 🙂
I agree with Vivek. I think the fees should be linked to networth of the client.
The upside: The conception that financial planning is meant for the rich will go and the middle and lower middle income groups will be encouraged to see a planner.
The downside: The planner cannot sustain a business. A single person cannot put nearly the same effort with a wide variation in fee.
Which is why those who cannot afford planners must educate themselves with free tools etc.
CFP training centers/others can start internship programs where Students do near pro bono planning for low networth individuals. If this is integrated into the curriculum it would be serve many.
Just like quality education and quality health care quality financial advise unfortunately comes with a price.
@pattu, Any views on sharing the profit percentage sir?
Dear Vivek,
A planners work should never be linked to profits or performance. This may lead to deviations from a CFPs ethical code of conduct.
A plan is made with so many assumptions. If a portfolio under performs in a year the planner should not be blamed , because a plan is made with the risk appetite of the client in mind. If I am not wrong this is part of the agreement wordings. Also why financial literacy is important in addition to seeing a planner.
ps. please call me pattu. I am only 37 and I find it way more comfortable.
@pattu, You have raised a valid point on ethical code of conduct, it is there in all the professions.
But how else do you make the financial planner accountable to ensure a thorough and well defined solution has been designed? There could be planners who would lure the novices and give some impressive looking ready made solution that may not be useful to that particular client or try to make easy money in some other way. It may not be happening today but when CFP boom comes it may very well start.
Agreed. However if you link it to performance they may start pushing guaranteed return (LIC!) plans so that they dont need to bother about performance! Already there are many MF/LIC agents+ CFPs.
Going to a planner is a leap of faith. He makes a plan based on assumptions and inputs. You cant hold a planner responsible for market performance. If fund managers dont take responsibility why should a CFP?
This is why a CFP should never recommend any product. He/She should just say invest in a large cap MF etc. and show how to go about choosing a fund. (For example if your goal is 10 years away you could invest in any, yes ANY large cap fund and you should be okay).
rates of interest in a financial should always be underestimated. If done so the client can just randomly pick a 3* to 5* fund initially and review it each year. There is no need to overthink an investment.
Most Indians have ridiculous craze for interest rates. Financial goals have to dealt with emotionless maturity. This is the primary reason to go to CFP. Also why followup reviews are important.
@pattu, Hmmm.. you have made a good case here for CFPs. 🙂
Jokes apart, I think you are right in saying that when fund managers don’t take responsibility [although they take a commission] then why put pressure on CFP. This is when fund managers are playing with real money whereas CFP is only doing the planning.
So, we can conclude that a true financial planning consists of not only taking an expert advice but also financial literacy so that you can take responsibility of your own portfolio and not look for excuses to blame someone else.
@pattu, Thanks Pattu for bringing this forth, I agree with you on this.
@pattu, This is also another option that can be explored.
The first one was fees across diff salary bands.
This second one is link fees to networth of client.
The third is link fees over and above a certain base fee to the profit earned or the losses made.
This is getting interesting.
@Radhey Sharma, So, would you consider to implement any of the options? 😉
@Radhey Sharma,
I agree that the fee has to be in two parts.Fixed fee can be based on the income/networth of the client as well as the work involved in designing the package which will vary from client to client.For example retired people may need only investment planning and not the complete financial planning package.The variable fee can be based on the assets under management.I am not in favour of any fee based on profit/loss.
In the selection of CFP trust is the main thing.If we think that we can not trust somebody then there is no point in having a CFP.
@Radhey,
I am not sure how charging fees on salary band would work. Will the client reveal is correct salary, will he provide his salary slip as proof. For a man to reveal his salary is too personal.
@Rakesh, In that case how would a client get his/her portfolio designed without giving the salary details to the financial planner?
@Rakesh, No, we do ask for salary slips to check components of his salary to calculate EPF and other things in take away. From his financial planner, it isn’t too personal anymore !
@Radhey,
Makes sense then if salary slips are asked. However the client may have other investments namely multiple FD’s , physical gold, etc.
Would that be taken in to consideration too. Normally a person would not reveal the value of actual gold.
@Rakesh, If the fee is charged based on salary bands, the salary slips should take care of it. There is no need to know about other investments.
If a client is not declaring other invesments then it is the client who is not going to get a suitable solution, no loss to a CFP.
@Rakesh, Each and every investment of the client needs to be known for financial planning.
Would you expect a doctor to do the right checkup if you don’t reveal the actual illnesses to him ?
@Radhey,
There is a vast difference between a doctor and a CFP. When it comes to money matters people usually hesitate to disclose personal information.
Trust plays a very important role here. The client should trust CFP.
@Vivek,
Valid point, without revealing correct figures a CFP won’t be able to prepare a correct financial plan. I doubt all people would genuinely declare all their investments, there is always a fear of revealing too much information.
@Rakesh, I see where you are coming from but I think such people would be wasting their money on financial planners. If you can’t trust them you shouldn’t go to them.
@Vivek,
Yes I agree, we need to trust the financial planners else the money and CFP’s effort will go down the drain.
@Radhey,
How do you keep track of poll votes? Do you track via IP? If a person can vote multiple times then we would not get a correct result.
@Rakesh, It does not allow you to vote multiple times.
@Vivek,
It does, i voted for option 2 once again and the count increased.
I think Radhey needs to look into it and fix it.
@Rakesh, I just tried again and it does not do it for me, may be you are trying from a different computer. It must be tracking via IP.
@Rakesh, If you clear your cookies, it allows you to vote again. Otherwise it does not. So don’t worry.
@Radhey,
I have not cleared the cookies, seems strange.
@Vivek,
I am doing it from the same computer. Before posting my first post to Radhey i voted and once again after replying to you i voted once again.
This is very interesting question and comments mentioned above are also getting more and more thought provoking. Financial planning is an advisory function – there’s no guarantee and accountability for generating profits or returns – rightly so – which means there are certain disclaimers when a CFP is recommending a plan. That’s why I’m not in favor of profit sharing. Also, fees based on net-worth are debatable – historically we typically don’t disclose all our assets!
Another way is to look at fees based on time/effort required to create the plan – T&M as we know in software. FPs by their experience will have rough ideas how much time does it take for a plan to be made for say a salaried person or a businessman or a professional such as doctors. There will be some variations of course which can be agreed mutually.
My vote is for between 10000-15000.
@Vineet, I agree – this is what we follow as of today.
You alive mate ?
@Radhey Sharma, Yes sir..quite alive and kicking! I looked at your methodology and realized that you follow the same model.
My vote goes to “Between 10-15k”.
Based on my own experience, a CFP adds a lot of value to the profit margin on the base capital. So, I certainly believe it is valuable to pay between 10 to 15k for sound advice. Nothing comes free in life!
@Minku, I respect your vote and your thoughts. Very mature, thank you !
@Minku, Are you utilizing services of a CFP Minku? Can you share your experience?
@Vivek – yes i am utilising the services of a financial planner although he is not a certified CFP. I have divested my investment into equity, real estate, life insurances and a small amount into FMP’s. I still believe that certified CFPs will be able to provide the professional guidance which a non-certified financial planner may not have. I still have to make that transition to a CFP though.
@Minku, I think you are making a very wise decision to transition to a CFP. If you feel the need of financial planning you must go to a CFP.
You seem to have a well diversified portfolio but debt instruments look missing. You might consider PPF account or debt MFs.
@Vivek K, I have a certain amount (10%) parked in fixed deposits. Is PPF a better option than fixed deposits?
@Minku,
In case of PPF you money is locked for 15 years but it is tax free, whereas in FD you can have it for 1,3,5 years depending on your requirements but here the interest earned is taxable.
@Minku, Yes Minku, PPF is a better option. The returns are completly tax free and it is the best instrument for retirement planning. At present you can deposit maximum upto 1 lakh per annum and get interest rate of 8.2%, which if compounded over the period of 15 years will give you magical returns.
If you fall in highest tax bracket then FDs are not a good option at all. They should be used only to keep emergency funds due to high liquidity.
@Vivek K, Sorry the revised interest rate of PPF is 8.6%.
@Vivek – thanks for the suggestions. I will certainly move my FD’s to switch over to PPF within the 1 lakh limit.
@Minku, Glad I could help Minku but before moving money out of FD ensure you park sufficent funds in there for emergency expenses because as Rakesh mentioned the lock in period for PPF account is 15 years.
Since we are on PPF discussion, another thing to be noted is that you can have only one PPF account per person so if you want to deposit more than 1 lakh you can’t unless of course you are married, which allows you to open another account in your wife’s name. But please don’t get married just for that sake .. LOL 😀 .. kidding!
@Vivek – i am married with 2 children. So can i open PPF account in wife and also for both the children i.e. invest 4 lakhs per year?
@Minku, Unfortunately you can’t invest 4 lakhs per year. You can open PPF account in the name of your kids and since you will be the guardian, the total investment across all PPF accounts cannot exceed 1 lakh. This could be a good way to save money for kids higher education but unfortunately the limit stays at 1 lakh.
However, your wife’s account can have another 1 lakh so total savings you can do is 2 lakhs per annum.
@Vivek – this is good information, can you help me in understanding the difference between PF and PPF.
@Minku, PF or EPF (Employee PF) is also a provident fund account. This is nothing but what is deducted from your salary as PF and your employer also contributes the same amount to it.
Whereas PPF account is voluntarily opened by anyone and contribution is only from that person.
There could many more features and difference, may be Radhey can do an article on this?
@Minku,
You can also look at MIP’s to park your funds. Most of them invest in Govt. bonds and they have only 5% investment in equity. So if you can take little risk then you can consider investing in them. Their returns can easily beat FD and PPF.
I have investments in Birla MIP & HDFC MIP since last few years and have got good returns so i may be biased towards them.
@Rakesh, MIPs can have even upto 20% in equity.
@Radhey,
Yes, but we also have MIP’s which invest only 5% in equity.
BSL MIP II Savings 5-G is one of them. I have this fund in my portfolio.
@Rakesh, Of course, I thought you meant to say they invest upto max 5% only, Sorry, I guess I got it wrong.
@Radhey Sharma, 20% is pretty good Radhey. Can you suggest some names here or may write an article on MIPs? 🙂
@Vivek,
Apart from Birla, we have HDFC MIP & Reliance MIP. I have been investing in these funds for over three years and their returns have been good.
Over a 5 year period all the above funds have generated returns in excess of 10%.
I agree with Vivek to a large extent. First as this is a consultant’s job, prices are bound to differ from one consultant to another, there is nothing wrong in that, in fact that is inevitable and healthy too. So we are here talking about fixing a ‘minimum’ threshold price. To come to a conclusion, we have to see the costs first, fixed and recurring both. Then we have to cover up the risks, as we spend a lot of money and time to keep safe clients’ important data. Then there are costs to remain updated in technology front also. Keeping all these in mind, I believe Rs.15000 is a bare minimum price to charge for a customised financial plan. Sharing a percentage of profit (5 to 10%) is also a good idea, as here the fees become performance linked and thus fairly justified.
@Sandip, Great stuff Sandip, thanks for your comments here.
Nice to know I can keep my business running 🙂
@Sandip, Thanks Sandip, appreciate your thoughts. However, one of our fellow readers, Pattu doesn’t quite agree with the profit sharing model. Did you read our conversation?
The profit sharing model is not even in practice in CFP profession. What are your views on this?
How much should financial planners charge?
Mmmmmmmmmmmmmmm by seeing this question, instead of answering poll, immediately other two questions came in my mind.
How much should a doctor charge for (general) consultation?
How much should a lawyer charge for a (normal) case? (there can me more professions, but these two clouted my mind immediately)
Before I continue my comment, I want to clear that I am just writing the thoughts ran through my mind as soon as I saw the question and tried to answer, and it’s not an opinion yet. (And also am not comparing FP, doctor or lawyer, so please don’t want to divert the topic. I am just thinking about process.)
So of course, a doctor may charge different for different types of consultation and a lawyer charges based on kind of case. (This is current methodology, exceptions are always there). So one base thing, I felt to be concluded is ‘PARAMETER’ does matter.
As the (poll) options are fixed here, I thought let me take it as ‘general consultation’ and ‘normal case’. Then it comes like the charge of an expert / a famous doctor/lawyer will be different than the normal or less famous ones.
Then I thought better to decide taking a normal (doctor / lawyer / FP) consultant. Now we have to think about all parameters not just normal as all the investors (patients-consultation / petitioners-case) can’t be same.
So does that mean, a normal/famous FP should vary his charge based on the investor’s parameters (Base Charge + Parameter Resultant).
So I thought let’s first check important parameters: Income, Net Worth. (Secondary parameters could be what investor wants: a complete financial planning, tax planning, particular goal based planning or just one time advise / portfolio alignment.)
I felt that if net-worth is more or less, the effort mainly is to divide / diversify them into % based on investor’s profile. So it might not take much effort difference while doing planning for 1Cr vs 4 Cr. (It’s just my thought, I can be wrong.)
Then, let’s try with income bands.
Upto 4L – This are mostly youngsters and might not have much Net-Worth (generally, not exceptions) – Between 5-7K
4L – 8L – Bachelors about to marry, newly married or might with kids – Might not have much Net-Worth, this stage really depends – Between 7 – 10K
8L – 15L – No comment on net worth – Between 10 – 15K
15L Onwards – 20K
Here, the people with less income band, less then 4L are paying less. Are they lucky? Is it ‘No’ because they are not earning much?
I feel with this structure, they are very lucky. Most of them are youngster, just completed their engineering/graduation and started earning. If they start their financial planning at this stage, they will get the initial direction and the benefit will be the HUGE compared to people start later. Doesn’t that make the charges cheaper for them ????
If we think much about it, the salary band will not be so useful. So what ????
Ya also what a retired person wants to do his/her financial planning. Here also salary band seems not working. So Net-Worth comes back into action for them. But would they be happy to pay more, if they have really good net-worth. Don’t know.
Then important parameters are not so useful. Then we left with secondary parameters, what investor wants: complete planning, tax planning, etc. That’s it? Mmmmmmmm this is what Radhey’s current charges based on (as far as I know / seen last). Confused .
Somehow I don’t feel FP should charge based on % return. Their main motto is to align ones investment to meet the goal, manage the asset wisely and not to assure the returns (few may take commissions as agents). So that case also got ignored.
Somehow my mind was thinking that investor’s profile is also important (again back to income/net-worth). I mean few more parameters age, needs, situation, etc. As they are related to the time and efforts required for a financial planner to customize the plan. This comes only for those who opts for a comprehensive / complete financial planning. So 10-15K is obvious to be charged for it.
As I was not sure, I haven’t taken the poll yet. Finally, if you are a famous CFP (hard work and time req), charge it, people will pay for it .
(PS: These were my thoughts not any theory (LOL). You can laugh on it but don’t take it as a serious opinion. I felt to write whatever thoughts ran into my mind.)
@Chirag, So, this wasn’t your serious opinion and you wrote so much, what would do with your serious opinion Chirag?.. 😀 .. LOL
All of us are having the same thought of fee to be charged depending on the case and not a flat fee. The parameter could be the annual salary or client’s net worth but some customization is required. We will leave the CFPs to do the brainstorming on this. 🙂
As far as I know most of the CFPs are charging 15k for comprehensive planning and 5k for single element planning, which I think is suitable division of fee.
We will be waiting for your serious opinion Chirag 🙂
@Vivek K, LOL, I really don’t have any serious/fixed openion Vivek. If I had, would have just put it in one line and given reason in two more lines.
As I was not sure, I shared all my thoughts (many of them already discussed by you guys, still I just shared mine). I don’t know what should be exact charge and so didn’t take the poll yet. It can be based on customization. Let a FP decide how much he want to charge based on his client profile and with my request that not much (LOL) at least within 15K for normal guys. I am not aware about how much other FP’s are charging. Ya few months back on ICICIdirect website have seen that they are provideing financial planning service in some 5-10K (may be 7500) though am not sure how many times in a year or is it comprehensive.
@Chirag, Your thoughts are pretty good buddy, I was just playing with you :).
Unless you are a CFP, you can’t really tell how much fee should be charged. All of us will look from customers perspective. So, you can vote based on yout thoughts.
As far as ICICI or any other banks FPs are concerned, I don’t think it’d be wise to consult them as they have hidden agendas to sell their own products or another company that has tied up with them. E.g Citibank promotes Birla products and their FPs/RMs won’t recommend any other product. So, their advise would be biased.
@Vivek K, Agreed, they cross sell products which might not be healthy actually in the long run.
@Chirag, Firstly, many thanks for leaving a detailed reply Chirag. You are a true reader.
I think I agree with you when you say that the CFP should not have % share of profits earned and so losses made.
There needs to be a base charge and then the “extra” charge can be split upon some parameters – this could be the scope of the plan being made OR the number of products which the investor has and which need to be analyzed (so this is the time spent by CFP on planning)
OR split across salary ranges.
A mixture of all can help the client go easy and the CFP justify his fees easily.
Linking to net-worth is a good idea but then one needs to know the net-worth of the client and some clients might think that the CFP wants to first find out how rich the person is.
So there are many ways by which the fees can be arrived at as you rightly say.
Many thanks for such a detailed contribution, I really respect your time for this.
@Radhey,
On the “extra” charge can be split upon some parameters, I just thought about goal-based approach. For eg. If have split my goals on a 3, 5, 10, 20 year basis and if a CFP an achieve my 5 year goals in 4 years based on his investment methods then definitely an extra charge can be paid. This is just my assumption as sharing of profit/loss are ruled out.
@Rakesh, This again sounds similar to the profit sharing model. When you achieve your 5 year goal, it means you have earned your profits and then you are willing to pay some extra money. It is indireclty the same model.
@Vivek,
Yes, it does sound similar to profit-sharing model. I was thinking of other avenues wherein we could reward the CFP apart from the agreed fixed fee.
@Rakesh, They do earn commission from MFs when they help clients to buy.
Any commission from profit will directly or indirectly divert from ethical code of conduct so I think it is better to leave that part.
@Vivek,
Agree with you, they earn commission from MF but nowadays that would be peanuts. Few years ago when i invested in ELSS funds offline my MF agent gave me 3% commission but now he says he does not earn much.
@Rakesh, They are not supposed to do it man! It is illegal as per SEBI guidelines.
@Vivek,
Illegal, thanks for pointing that out, never knew that.
Thought it was similar like LIC agents giving back a percentage of their commission.
@Vivek K, What LIC agents do is also illegal, this is like bribing customers to buy policies.
@Vivek,
I had a similar experience when an agent of Aegon had bribed me to buy a term plan for Rs. 500 commission. I complained to the sales head and he said that this can cost the agent his job.
@Vivek K, You should have complained to IRDA, there should be strict action against such people.
@Vivek,
Did not knew that IRDA existed then? But the agent and his team-member literally begged me to take my complaint back saying their jobs were in danger and they had a family to look after.
@Rakesh, Still I wouldn’t care, they should think of consequences while making such offers. What’s the guarantee that after you took your complaint back they wouldn’t repeat such practice. For all you know they might think that they can get away by pleading.
@Vivek,
I have soft-heart, when it came to their family members and they being the only bread-winner, i let go. Took my complaint back and promptly cancelled my policy with them.
@Rakesh, Sorry guys, I think we ma massacring the fee for a planner and brining in so many parameters that the CFP will commit suicide. Can’t be so complex honestly !
Performance of products cannot be controlled by a planner so this cannot be a parameter.
@Radhey,
I’m sorry if i went awry. I was just thinking on other lines apart from the fixed fee.
@Radhey Sharma, Thanks so much Radhey. It’s our pleasure to comment here as each and every article is educating us and we always get your response right on any comment.
Ya it’s very true and people won’t share net-worth so easily or at all. It would be difficult to find that out and charge on that.
@Chirag,
Liked your detailed reply, charges on the income bands seems right.
One point is misunderstood here. Please first separate Financial Planning and Money Management or simply put ‘implementation’. Your and my job starts and ends with planning – authentic financial planning. But once the planning report is explained to the client, if he/she wants to implement the same through you only – then a different role and responsibility comes into picture. Here onwards you are managing his money directly, so you can not and should not shy away from your responsibility. But you can always give him an option – whether to pay fixed fee or sharing of profit. Remember client does not always lose money in profit-sharing. He first earns money then he shares a small percentage of that with the planner. If he does not earn, he will not pay you anything. So it has to be always Win-Win. In fixed fee model, whether client’s money grows or not, he has to pay you. So it can be Win-Win, and also can be Lose-Win. So in fixed fee model, planner always wins. Remember again, we are giving client an option first and explaining both the model to him in details. Post that he would sign an agreement.
@Sandip,
Liked the way you put it but then CFP’s are also out there to make money and fixed model would suit him. It’s their bread & butter. Radhey did mention that sharing of profits is not healthy.
@Sandip, Sandip, don’t you think that to earn profit CFPs will end up recommending guranteed returned plans, which can’t beat inflation?
When you invest in MFs, fund managers don’t take any gurantee for profits so why should a CFP get into that kind of agreement? Wouldn’t it divert from ethical code of conduct?
I was in the same opinion as yours when I first posted my comment but after some good discussion I tend to believe profit sharing model would do more damage than good.
@Vivek K, I don’t think CFPs will recommend guaranteed returned plans but I agree that the profit sharing model is not good.
@Radhey Sharma, Yes Radhey I understand they will not recommend such products. What I meant to say was “if” profit sharing model is implemented they will be under pressure to make profit for clients and some might in order to play safe recommend guaranteed plans, which is of course not good for either of them. I was just trying to highlight the downside of this model.
@Sandip, Just to clarify, in the fixed fee model, the money is paid for “making the plan”. Planners can earn from commissions on distribution of products (MFs, stocks, insurance).
But I am not sure whether fee sharing of profit is any good as this can undermine the very basic foundation of FEE ONLY financial planning, which a lot of people offer.
But worth considering. Thanks !
@Radhey,
We have seen a very health discussion on this topic with over 100 comments. If time permits can you please compile everything and give your feedback/verdict.
@Radhey,
Also can you please make sure that from next polls a user can only vote once. This way we can get accurate results.
Is this too much of a task?
@Radhey,
I just called 2 FP’s and 2 CFP’s randomly yesterday to inquire on the rates. One FP quoted 3k and the other 5k. One CFP quoted 8k flat rate, the other quoted 12k and also a share in profit.
See, you can only guarantee your honesty, your commitment, your intention. No model can do that, whether it is fixed fee or profit sharing. So, it entirely depends on an individual planner, his values and principles.
@Sandip, Very well said Sandip. While how much fee should be paid is important, the values and principles of the CFP matters the most!
@Sandip,
Agree with you, do you have experience with CFP’s
Hi Radhey, would you be able to put your final thoughts on this? There has been a healthy discussion and I am keen to know what a CFP would take out from this.
Although to my surprise majority of votes have gone to “Less than 5k”. What is it telling? Do people think FPs are charging more or they are underestimating the efforts/value of a FP?
@Vivek,
The same question i asked Radhey a couple of days back to compile everything and provide his feedback. As for the votes, i am not sure how correct they are since a person can vote multiple times.
I also asked Radhey if he could put this check in the next polls.
Your thoughts please?
@Rakesh, Yes, I do remember we tried voting multiple times and you were able to, although I was not.
If it is happening then I think it is worth fixing the issue otherwise it could give misleading results.
Easy way probably would be to let readers vote in the same way as they put comments i.e. by entering their email ids and then a simple check to not allow duplicate votes OR if IP address is already getting captured then may be a duplicate check on that. Radhey is from IT, I am sure he can figure out an easy way :).
@Rakesh, A person cannot vote multiple times unless until you go to a new computer. Don’t read too much in the vote guys.
@Radhey,
I am doing it from the same computer and i did it once again.
Below is data, I voted for less than 5k.
Before Voting
————-
How much should a financial advisor’s fees be ?
Less than Rs 5,000 35.9% (28 votes)
Between Rs 5,000 and Rs 10,000 23.08% (18 votes)
Between Rs 10,000 and Rs 15,000 20.51% (16 votes)
More than Rs 15,000 20.51% (16 votes)
Total Votes: 78
After voting
————
Less than Rs 5,000 36.71% (29 votes)
Between Rs 5,000 and Rs 10,000 22.78% (18 votes)
Between Rs 10,000 and Rs 15,000 20.25% (16 votes)
More than Rs 15,000 20.25% (16 votes)
Total Votes: 79
Return To PollCreate Your Own Poll
@Rakesh, Which browser do you use and is thee a defualt setting that when you close it down, it clears the cookies ?
Or does your PC get another IP whenever you log in ?
I checked at my end on diff PCs and cannot do the same.
@Radhey,
I use Mozilla, there is no default settings to clear cookies, i clear them manually. My IP address is constant, seems strange.
Bye the way i use a data card for my internet connection. I don’t think that could be the reason.
@Rakesh, The use of data card could be a potential cause here. It might assign a different temporary IP to connect to the internet.
Try looking for IP address [whether it is same or different] using ipconfig/all from the command prompt.
@Vivek,
Yes my IP address is the same, it doesn’t change. I tried it several times.
@Rakesh, Strange, I always get: –
“Thank you, we have already counted your vote.”
@Vivek,
Hmm, don’t know. Let’s see how it goes in the next poll. I’ll make sure to keep a check on IP address.
@Vivek K, The vote is from around 75 people now and most of them say less than Rs 5,000 which to me demonstrates the fact that people want a free lunch.
I will tell you a secret thing – I was sure this would be the most voters.
But CFPs won’t come down to this level.
Are you looking for some other things from me on this Vivek ?
@Radhey,
I agree that most people want free lunch but a fee of Rs. 5k is way to less for a CFP, atleast it should start with 10k.
@Radhey Sharma, Agree Radhey, if you give an option people would always want to go for free lunches. You know how people eat less at restaurant where they have to pay and a lot more in marriage ceremonies :D.
But I also think 5k is too less a fee for financial planning.
What I am looking from you is what’s your take from this overall discussion? From CFP perspective what do you think is the ideal way of charging fee [since we discussed lots of options] and how much?
Had a good laugh after finding this: –
http://www.snapdeal.com/deal-kolkata-suskan-cosultancy
Looks like Radhey will have to introduce another poll option. 😉
@Vivek K, Oh damn, 98% discount. I will have to close down my business, lol !
@Vivek / @Radhey,
Rs. 145 for goal planning worth Rs.7500. Hmmm, no idea what kind of planning will be done.
@Rakesh, Wana give it a shot? 😉
@Vivek PPF rate has increased further. Times of India says that the returns on PPF with the new rates will be 12%, is that correct?
@Minku, Yes, I read the news. The revised rates are 8.9%. Where did you read 12%?
Believe PPF is compounded so what TOI mentioned it that over a 10 year period, it gives a return of 12% since it is non-taxable.
@Minku, Yea may be that’s the case. You know how media has to exaggerate everything. The headline will contain 12% so that people in curiosity read their article and inside it will have 8.9%.
@Vivek,
8.9% for PPF is not bad, something to cheer for the common people after a dampening budget.
@Rakesh
See the govt is not all bad after all, it’s always the combo of good and bad things.
@Vivek,
Agree, I would say more of bad things then good.
Hopefully next time when BJP comes in power their FM would make the budget more favorable.
@Rakesh,
haha, they are all the same Rakesh. I wouldn’t count on BJP or any other party for that matter. They talk when they are in opposition but do the same things after coming to power.
@Vivek,
What you say is right, same old story.
But people are fed up with the current government, too many scams.
A change is what they are looking for, UP did that, hope other states follow suit.
@Rakesh
Yea too many scams from one govt, others should get a chance too 🙂
@Vivek,
Others should get a chance to do more scams????, rightly said.
But i was impressed by UP people making that change, let’s see what this young blood brings in…
@Rakesh,
One can always hope!
@Minku,
And i have seen adds in the past wherein for every Rs. 10,000 deposited in the 5 year tax saving fixed deposit scheme for individual in 30% tax bracket the annual yield was 17.98%.
Now i don’t know how they came at this rate.
You might be right – i’ll go back to the article and read the finer details in it.
@Minku,
Here’s the link-
http://timesofindia.indiatimes.com/business/india-business/Small-savings-set-to-fetch-higher-returns/articleshow/12347310.cms
@Minku, Let us know if you find anything interesting or something we would have missed.