Tuesday, 27 March 2012

Roadblocks for advisory fees

From the desk of Chief Marketing Officer
Sharad Bindal

Post Aug.2009, after abolition of entry load in Mutual funds, I have met a number of investors and confronted with their reluctance of paying advisory fee to their “Advisors” as envisaged by SEBI to be the future of Investment industry.
To sum up, following are the roadblocks prevailing in the way of healthy financial practice by opting for Advisory model:
·         Absence of a tangible and visible product:
Unlike any other product the outcome/ performance of which can be known immediately after buying it; the outcome of financial advisory can be judged only after a long period.
This makes people reluctant to pay advisory fee instantly and then to wait for long for analyzing them.
·         Lack of Trust:
Since the investors have been conned by their agents and distributors in the past, they are now reluctant to rely again on new advisors and moreover paying a fee to them makes them more reluctant.
·         Agent Vs. advisors:
While an advisor may work hard on preparing of financial and goal based planning customized to the requirement of a particular client, an agent may come up with past return chart extracted from various available websites without even knowing the risks associated with the products suggested or the requirement of the client.
What makes a difference for most of the clients are that the agent is working for them for free and that too with a clear depiction of “promising returns” while on the other hand, Advisor is charging a fee and presenting some products with not so promising returns (as suggestion involves risk adjusted return analysis).
·         Linking up of Performance with Advisory Fee:
Many a times, I have been asked by people while briefing them the concept of Advisory, as how much returns I will generate for them if they pay a fee to me. While making them to understand that actually the so called guaranteed returns are features of fixed income products only, I have been asked as to “HOW I AM DIFFERENT FROM OTHERS, THEN”.
The answer to this question actually lies not only in delivering the better returns rather following a process driven system while putting forward my suggestion customized in the manner to meet their specific requirements.
The need of the hour is that a client should understand that even if a particular scheme is topping the chart in terms of delivering returns, it may not be suitable for him considering the specific requirements viz. lesser investment horizon or lesser risk appetite. What he requires is a customized plan of investment solutions matching exactly his requirements.
·         Linking of Portfolio Size with Advisory Fee:
There is a perception in minds of people that they should pay advisory fee if and only if they have certain amount of portfolio and since they have lesser amount of portfolio, it is not worth paying.
Well, the fact is that the one is required to focus more when he is in accumulating phase of life as early planning of financial goals produce dramatic results in future.

Wishing these Roadblocks will disappear soon paving way for the healthy practice in the industry.