If you do not know who is paying your financial planner, take heart, you are paying a much higher price than you want to.
Frankly it does not matter what a person calls himself / herself. If a person says ‘I will spend time with you and make a financial plan, and I will charge you X amount of money, AND i do not care where you execute the transaction, he is a planner’.
However, if he says ‘I will help you plan and will also do the paper work for the investing, he is a distributor’. The agency could be in the name of the spouse, child, parent, friend with whom the commission is being shared.
Is there a conflict of interest? Yes. Why?
– for a bank employee, his bank may be working with a particular Mutual Fund, so the RM may push that product
– the RM may be chasing a reward and may be short of achieving that number, so he may be pushing a wrong product
– banks like upfront commission more than trail, so they push life insurance products
– the person selling may not even know he is pushing a wrong product. Managers normally want sales guys to know the minimum so that he can sell without too much intellectual inputs
-sales commissions are much higher than ‘fees’
-most people cannot do a reverse engineering of the product, nor realise the impact of a small aum based charge vs a high upfront charge. Financial illiteracy is fashionable.
-most financial planners sell directly or indirectly – again proving that till there is customer awareness, stricter regulation, etc financial services will be a mess.
– if a customer wants real sensible advice, he has to learn it himself. If websites are masquerading as planners, I am not sure why doctors, dentists, etc. cannot do web based consultancy. Any answers?
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