Media loves to bash the financial advisors. The main accusations about FAs are – they sell products which the clients do not need, they sell products which have the highest commissions, they do not know all that they should know….etc.
Let me now bat for the FA. A good FA should be well qualified (let us call him a CA) so that he can understand equity markets, debt markets, financial planning, drafting of a will, pre-nup agreements, life insurance, mutual funds, real estate, and at least a passing interest in commodities. He should also have some experience.
Now we are talking about a 30 year old CA trying to make a living as a FP. Let us say he can get 4 NEW appointments a week and he is able to convince 2 people to sign up for his “FP” services. Assuming he has an office he should be spending Rs. 30k a month on the office and about Rs. 10k towards conveyance etc. Thus he spends say Rs. 500,000 a year on the office. A self respecting CA aged 30 would be able to get a Rs. 12 lakh job, so being on his own he may be targetting Rs. 15L a year. This means he has to earn Rs. 20L a year to break even with his counterpart in service.
If he gets (and retains) say 100 clients a year, he has to earn Rs. 15,00,000 / 100 = Rs. 15,000 for a cient at the minimum. Now if he has personal expenses of Rs. 12,00,000 a year, – he has to earn (thanks to tax) an additional Rs. 15 lakh. Thus he has to charge the client Rs. 30,000 a year – without any money available money for investing / saving! Let us say he is a straight forward person and he says invest money in an index (etf) and take a term insurance. This is honest advice.
I think I can count the number of people willing to part with Rs. 30k for such a simple advice. Can you count even as many?
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