Is your bank or broker your financial planner?
Jul 26, 2010

Author: PersonalFN Content & Research Team

Who is your financial planner?

Till now most investors used to focus purely on making investments into various instruments, like Mutual Funds, Insurance, Gold, etc. This was hardly ever backed by a thought on financial planning. Now, however, a lot of them seek to create a financial plan which guides them on how much to save and helps them select the right investment instrument to channelise their savings in. This is done after a detailed study of their existing investments, income, expenses and risk profile.


Financial planning has become quite a buzzword today.


In the last couple of years and especially after SEBI banned entry loads in mutual funds almost a year ago, there has been a sea change in the perception about financial planning, both in the minds of investors as well as service providers. And thanks to the media for the awareness created, as most investors now seem to understand the concept (although vaguely).


Today, almost everyone in the financial services industry claims to do financial planning.


In fact, major banks, brokers and distributors of financial products have opened departments or divisions which deal specifically with financial planning.

So, let us understand the various kinds of service providers who are involved in this activity:

  • Banks: They are the most ubiquitous ones. They offer you everything from opening a bank account to remittances, to investments and now they help you get a financial plan as well.

  • Brokers/Distributors: They offer stocks, mutual funds, insurance, post office schemes, fixed income products etc. Your neighbourhood mutual fund distributor, insurance agent, larger national level private distributors form a part of this segment.
    The larger focus of banks and distributors is to sell (and not advise) you financial products, so that they can earn commissions on those products. Infact, they have been instances of mis-selling, whereby the broker protects his interest (through commissions) first rather than the client’s (wealth creation).Investors still flock to them. Why? Because you as investors have fallen in love with one stop solution shop - this is encouraging them to portray themselves as financial planner. It may add a lot of value to the perception of investors, but the focus on your financial health is not much. Most often, this service is offered for free since you are expected to buy financial products from them. Financial planning is not their focus area. It is a means to achieve their targets of selling financial products and earning commissions.

  • Pure Fee based planners : There were not many pure fee based financial planners in the country a couple of years ago. But since then many individuals and companies have emerged on the horizon now, especially in the larger cities where the awareness of the concept is better. They are now quite serious about pursuing the business model of offering pure fee based financial planning services. Well, some of them are well known and others are not. Thanks to the awareness of financial planning education, most of them have also acquired the Certified Financial Planner (CFP) tag.

  • Service providers offering both services: As is evident, these service providers offer financial planning as well as distribute financial products like mutual funds, insurance, stocks, etc. Financial planning becomes a vehicle which they use to distribute their products. A lot of brokerage houses have converted themselves into planners.

Charge for Financial Planning:

The financial planning industry is yet to come to terms completely with charging for the service. While some who offer only planning services charge a fee which can vary from Rs. 5,000 to Rs. 50,000 and sometimes more, there are others who charge as a percentage of the assets you invest through them which typically varies from 1% to 2.5%. While some others have a mixed fee model and they charge you a flat fee for a plan and then an investment fee on your investments.


(This is a two part article. To read second part on how to select your financial planner  click here)


About PersonalFN:

Talk to a PersonalFN consultant today (NO OBLIGATIONS!) and ascertain how you can use Financial planning as a tool to manage your finances and achieve your financial goals. Call us at +91 22 6136 1221/22 (Mumbai) / +91 44 6526 2621 (Chennai) or click here to write to us. 

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