Even when they are referred to a good consultant, Indians dislike paying for financial guidance. I get calls from people who need financial assistance but are unwilling to pay for it every other day. Consider the situation of 50-year-old Shobhit, whose child has just begun medical school. In order to participate in equities funds, Shobhit wanted to withdraw money from his Public Provident Fund (PPF). He decided against taking out a loan to pay for his son’s education because he thought equity funds could be a useful tool for boosting the education corpus. He believed that equity funds could pay him 13–14% p.a. while PPF was only returning 7.1% p.a.
Investors typically require confirmation of their opinions. Shobhit also wished to find out the viability of his investment plan. It was hard for me to express my viewpoint without being aware of his entire portfolio and financial objectives. Despite having many ambitions and a little corpus, Shobhit was hesitant to work with a financial planner since he did not want to spend money on financial guidance.
When it comes to paying taxes, I observe the similar mindset in people, who refuse to spend Rs. 8000–10,000 annually on filing returns correctly. Despite being informed of the difficulty of filing an income tax return (ITR) and the consequences of making an incorrect disclosure, I frequently receive inquiries from owners of foreign stock, particularly those who have employee stock options (ESOPs). Simply put, this is being unwise with money. A Rs. 10 lakh fine is levied for failure to disclose foreign assets, and incorrect reporting is subject to 30% more tax and fines. The Black Money Act allows for criminal prosecution of the defaulter. Saving a few thousand Rupees on tax filing for such complicated deals exposes you to more serious problems into the future.
Poor investment decisions, such as investment-linked insurance policies or schemes, might end up costing far more than the cost of financial advice. Investment linked insurance plans have an annual return of 4-5% compared to equity mutual funds’ 9–10% annual return. Based on recent performance, investing in an equity fund for two to three years exposes you to high volatility and possibly even negative returns. Investor returns follow fund returns because of schemes that are continually being changed based on historical success. Around 6-7% each year divides the best- and worst-performing funds, which is a far higher cost than adviser fees.
Investors are under the impression that they can handle everything themselves without expert assistance because of their lack of knowledge and data overload. The emergence of internet platforms backed by private equity and offering free counsel as their value proposition is not helping the situation. Nothing comes free of cost!
It is shocking that Indians have changed their mindset with the times on so many different fronts but not when it comes to money. Financial advisors haven’t always been trusted, and the perception is that they mislead investors into buying products so they can pocket hefty commissions while neglecting the interests of their clients. Social media also portrays financial advisors in an unfavorable light.
One cannot draw conclusions about all advisers. There are many excellent, trustworthy, and honest financial advisors. Start by realising that getting financial advice includes more than just picking out schemes. It also involves receiving expert advice on how to set your financial goals and support through uncertain times. You would want to be respected for your industry knowledge and compensated appropriately. For those in finance, the same is true. Everything that is free ends up being worthless or costs twice as much in the long run!
Second, look for fee-only financial planners or get a financial adviser referral from someone in your network. Instead of promoting insurance policies or other similar financial goods, a skilled financial counsellor would discuss financial objectives and long-term strategies.
To become a knowledgeable investor, do your research. Avoid watching social media reels and videos. They are intended for people who prefer enjoyment rather than in-depth education. Insist on the advisor creating a financial strategy. The value the adviser brings, is that, your financial life might significantly shift upward with the help of education and sound advice.