Portfolio : A collection of investments owned by the same individual or organization.
Will : legal declaration of how a person wish his/her possession to be disposed after their death
Return : Profit or loss derived from an investment
Certified Financial Planner is professional certification mark of excellence for financial planners conferred by Financial Planning Standard Board (FPSB) of India. A person qualifying for CFP will have to undergo/ abide with Education, Experience, Examination & Ethics. CFP is the most prestigious & internationally accepted financial planning qualification.
A set of assets which an investor holds. This may contain equities, mutual funds, insurance and other cash equivalents.
Wealth is accumulation of resources or as on date value of assets a person own. Commonly Net worth is the measure of Wealth of an individual.
It is the raise in the value of Consumer Price Index. That is the rate of increase of the price of a goods or services.
The financial planning is not a product, and therefore standardisation is not possible. How much financial planners charge is based on the Financial Planner’s type of firm, service and process (selective or comprehensive) involved in financial planning. The annual financial planning charge ranges from as little as Rs 6,000 to as high as Rs 40,000. It can be higher in some complex cases.
People nowadays are increasingly seeking a Financial Planner’s advice when it comes to investment planning, risk management, wealth management and tax planning considering inflation, unemployment, health problems and future financial goals like own house/company/car, higher education, early retirement, travel, etc.
A Financial Planner can help you achieve your short-term as well as long-term financial goals with a realistic Financial Plan. Since there is no standardisation in the cost for Financial Planning in India, people are confused with the average cost and its features for it.
In this post, you will know the different types of charges for Financial Planning in India.
4 Ways Financial Planners Charge fees to you and which is the best way for you?
1. Commission Based
Commission based financial planners claim themselves as “Free financial planner” or “No-fee financial planner” which looks very attractive from the outside. But there is a catch. There is no free lunch.
Commissions are paid to Financial Planners from financial or insurance products you buy through them. When you invest money in a policy through a planner, they get a commission for the product sold.
When you invest in 50,000 rupees policy through a Planner, they get a commission as high as 25% which is Rs.12,500 in this particular case. These are generally collected as hidden charges. Since you don’t pay the Planner directly, you might not worry about the high commission price paid.
Due to this, misselling may happen with biased interests of the Financial Planner to earn more commission through product sales which might not be the best for you.
2. Asset Based
When Financial Planners manage client’s wealth, they typically charge 1% of the assets per year.
A Financial Planner ideally spends the same amount of time to manage Rs. 2 Lakh, as well as Rs. 2 Crore worth of wealth, since the work he does to manage the wealth, is same.
Some planners charge Rs. 2000 for managing 2 Lakh rupees worth of wealth, and Rs. 2,00,000 for 2 Crore rupees worth of wealth. The huge difference in charges is not justifiable.
This is a type when clients seek Financial Planners for higher returns on investments.
In this case, Planners are often paid a basic flat Percentage fee for their service and an extra percentage of fee based on the higher returns after a certain level which is initially decided by both the planner and the client.
1% basic charges on the assets managed + 20% share in profit over and above 10% returns.
Even in the case of loss, the client will pay a basic fee to his planner for the service. Only in the case of higher returns beyond an agreed level, a percentage will be shared again to the planner.
Performance-based fees encourage a planner to take the excessive risk than what is required, which you may not be comfortable with.
4. Flat Fee or Fixed Fee or Fee Only Based
From preparing a financial plan to periodical reviews to personal consultations, Financial Planners charge a flat fee for their service. Some financial planners charge to complete a particular project, and some even charge on an hourly basis.
The flat or fixed or fee only financial planners have a fiduciary responsibility to act only in the best interest of their clients. Fee only certified financial planners do not take commission from product sales, and so they provide more comprehensive advice to clients.
This type of charge has been welcomed by top certified financial planners and people all around the world for its efficiency.
How much do fee only financial planners charge? In general, financial planners charge for their time or wisdom or combination of both. The fees Financial Planners charge also depend on their geographic location, level of services and client’s specific needs.
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Are you aware of the 3 Common Models of Fee Only Financial Planners? Discover what the best model is for you.
A. Financial Planners with Online Calculator model
You might have seen the online Calculator Model Financial Planning which is the cheapest model of all, where users have to give their details, and the Financial planner simply will feed these data into an online calculator to get an output. Based on the output the financial planner will advise you to opt for relevant policies or plans.
Financial Planner’s interpretation in planning will be minimal here, and importantly, Inflation will not be calculated correctly. This model, which is designed to prepare a general financial plan, will not consider your unique situation and its factors for your future.
Lack of their knowledge will help you neither in the short run nor in the long run. No reviews or follow-ups are possible with the Planner.
On an average, Certified Financial Planners with Calculator model, charge you a fee of Rs.5000 or less per year and the cost will remain fixed for following years as well.
B. Financial Planners with Analytic & Robotic model
Valuable Insights from analytical tools and artificial intelligence are their strengths. But human disconnection will be there. Financial Planners should understand your life and your important goals in life which are all made up of emotions and feelings.
Without a proper understanding of these, a Financial Planner cannot provide you better financial solutions for your life. You will always be one among their 1000 clients in a division.
They provide automated customer support to retain their client base with them. You may not be able to meet the CFP most of the times; their assistants would be guiding you all the way. This would create conflicts during pressing situations.
Financial Planning needs a lot of one to one interactions in situations, where
- The financial goals are not realistic and not passing the achievability test,
- The market underperforms continuously,
- Some temporary losses have to be made in portfolio revamp
- A new complex financial product or strategy to be understood.
A Robo advisor will not be able to provide sufficient handholding in the above situations. As the Robo advisor lacks in-depth human relationship, they will be able to charge you less fee for financial planning.
On an average, Certified Financial Planners with Analytics & Robot model, charge you between Rs.6000 to Rs.10, 000 per year and the cost will remain fixed for following years as well.
C. Financial Planners with Analytics and Experience Model
Direct support of a CFP is the most beneficial thing here. You will get customised support to meet all your goals since they focus more on individual clients. Multiple reviews and follow-ups are possible to help you implement the plan without challenges.
Since human emotions are given importance, the Financial Planners with this analytics and experience model will create ample scenarios to meet your goals to your fullest satisfaction.
These Certified financial planners use technology, and at the same time, value and respect the human relationship.
Genuine Certified Financial Planners with Analytics and Experience Model, charge you between Rs.20, 000 and Rs.35, 000 in the first year and 50% from the second year for a Comprehensive Financial Planning.
Fees are higher compared to Calculator and Robotic model since you get personalised, effective expert advice to reach your financial goals.
In all the above three types of Financial Planning models, fees are charged quarterly or half yearly or annually depending on a Financial Planner.
Fees differ based on the process and model used by the Financial Planner. Know the ideal Financial Planning process below and check if your fees are justified.
The ideal Financial Planning process that justifies the fee charged
2 out of every 3 people are paying more to the financial planner or getting less benefits from the financial planner. Will You Be One of Them?
So understanding the ideal process of the financial planning will help you get more from your financial planner by paying him a fair fee.
The client will tell their financial status and future requirements. The planner will discuss the prospects, the process involved, and fees required for these. If the client agrees to work, the Financial Planner will start the work for a comprehensive Financial Planning.
I. Collecting Information
The planner will collect client's financial situation and lifestyle-related essential information which include total income and expense per month, past income tax returns, home and insurance policies and family wills.
Financial Planner will derive their cash flow and net worth statements.
II. Identifying Goals
Planner now will identify actual goals and objectives of the client and create scenarios to meet clients’ goals towards retirement, income, tax, portfolio, education, travel, etc.
III. Making the Financial Plan
Here, the client's goals get transformed into real financial terms. The Client will fine-tune the Financial Planner's rough draft of the Financial Plan to his utmost satisfaction.
The planner will then hand over a Final Draft of the Financial Plan to the client, which is the blueprint for the client to meet their financial security and goals in the calculated time.
IV. Implementing the Financial Plan
Regular follow-ups will be there to help the client to follow the blueprint as well as to solve challenges if any in implementing the Financial Plan.
V. Reviewing the Financial Plan
Quarterly/ Half yearly/ Year Review/ when needed
Periodical Reviews help clients to stay on track with their Financial Plan and the Planners to know the results of their plan in that period. The planner will also send a monthly report to keep the client updated on the Plan.
Situations may change, and there might be a need for re-evaluation. You may get a pay rise or promotion, a new medical/ education bill, an unfortunate death of a family member or accidental damage to your house or car. In all cases, the financial plan has to be adjusted for a clear path.
Which type of financial planner delivers real value for the fees you pay?
Financial Planners may have different processes based on different opinions, and so the process will differ from Financial planner to Financial planner. It’s up to you to decide and work with a Financial Planner with a different process, but make sure he does everything for your best interest.
Among others, the Financial Planners with Analytic and Experience model will provide you maximum support from making a customised financial plan to meet your goals to implementing the plan.
Will you choose your right Financial Planner now?
You have known the charges, models and ideal process of Financial Planners, but still, you may be confused on how to choose the right Financial Planner. Examine the things mentioned below, and you will be able to choose your right Financial Planner confidently.
Do a background check on the Financial Planner’s
- Credentials (Qualification, Achievement, Experience) and
- Credibility (Positive Reviews & Ratings through references) before fixing an appointment for Consultation.
Look for the following factors in a Financial Planner to have a fruitful and stress-free financial year ahead.
- a) Creativity
- b) Psychological comfort and Connect
- c) Availability for One on One discussion
- d) Same School of thought
See if your financial planner is creative enough to come up with different scenarios to meet your goals without compromise.
Check the financial planner’s nature for a good lasting relationship with professionalism, friendliness and human values.
Ask the financial planner how often he can be available for consultation when needed.
What school of thought your financial planner belongs to?
Does your financial planner support day trading or long-term investing?
Does he recommend sector-specific funds or diversified funds?
School of thought is the most important thing you should know about your Financial Planner to work along with him in an efficient and stress-free manner.
Many people would be confused and feel terrible some months or even years later for not knowing why a specific investment plan or stock plan or portfolio adjustment has been recommended to me in the first case.
The Financial planner should be transparent and unbiased in thoughts behind the pieces of advice given and that thoughts should align with your way of life. This is detrimental to a long-lasting and prosperous relationship.
Ask the Financial Planner to give their references and financial planning models for your understanding of both Financial Planning and Financial Planner.
Hope this post will end your search for Financial Planner’s Charges in India for Financial Planning and related queries.
Share your first experience with a Financial Planner and tell us what and how he charges for Financial Planning in the Comment Section below.
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