Why pay for financial advice when you can get it for free? You get it free from friends, colleagues, relatives, bank executives and insurance agents, right?

But have you ever wondered that the free advice might cost you a lot of money? For example, if you buy costly insurance plan that you don’t need or a mutual fund that does not suit your investment profile, you will lose much more than the annual fee of a financial planner. True Financial Planners are not Advisors or Product Sellers and they prepare a Financial Plan that is based on your need, your situation, your goals and your risk appetite.

Let's do some maths to find out the cost of free advice. Let us assume that a paid financial plan where the recommendations are not based on commission considerations will fetch you a better return. If you are prepared to assume this, let’s move forward.

Here are the assumptions. Imagine you invest Rs 15000 every month and that adds up to Rs 1,80,000/-. We have assumed the returns for 8% and 10%. Generally the commissions work out to just 2% of your investments and the difference between the returns @ 8% and 10% would be the cost of free financial advice.

Initially the difference looks too small. It is only Rs 3600 in the first year and approximately Rs 68000/- for an investment of Rs 9 lakhs after 5 years. But the difference continues to compound and the difference of Rs 1,05,47,560 happens at the end of 30 years!

Here's the table that calculates the cost as Rs 1 crore, 5 lakhs, 47 thousand and more!(Rs 1,05,47,560/-)

Editor's Note: LIC is the number 1 service brand in the country and statistically the number 1 in claim settlement operations. However, we all know about Achilles' heels which is a deadly weakness in spite of overall strength, that can actually or potentially lead to downfall. PV Subramanyam takes a look at Why LIC will underperform.

Here's what Subramanyam writes:

.... have been saying why one should not buy LIC policies, let me tell you the exact / specific reasons why, and I have these views for the past umpteen years, even pre 2001, when you had NO CHOICE:

1) LIC policies like classic endowment are opaque (this is actually true for all classic end policies , not just LIC). Here the returns one gets will be a sub optimal investment return. From this you reduce LIC’s costs of doing business and you will surely be left with a sub optimal, NEGATIVE real returns over long periods of time.

LIC revised it’s interest rate for various financial transactions like loan and dating back of policies for year 2012-13. Major change you look for is loan rate which is currently 9% changed to 10%.

Revival and Dating Back of policies changed from existing 8% to 9.5%. The details of the same are as below

Written by The RupeeManager Team

Saturday, 28 April 2012 10:22

Insurance is a subject matter of solicitation. Every print ad from an insurance company has to compulsorily say that. It is another sentence which fails to make a meaning clear. Solicitation is what? To solicit means to ask for or try to obtain. From whose perspective? The client or the agent!! Actually it officially means that the client or the policyholder must ask or try to obtain insurance. But in reality, insurance solicitation is entirely the job of the agent! So the difference between theory and practice starts with the slogan mentioned above. In Insurance, life insurance and health insurance and motor insurance and other types of insurance, there is much that we need to know about. We need to learn about insurance companies, insurance comparisons, insurance quotes and understand the insurance products. Here's a digest of links that will help you with the insurance information you need. Let's start with the fundamentals of insurance. Fundamentals: Being Covered is both Sexy and Smart

Read more... [Insurance Digest For Indians]

Written by The RupeeManager Team

Sunday, 15 April 2012 13:07

MoneyLife has a story about how HSBC Bank took Actor/Singer Suchitra Krishnamoorthy for a ride over a five year period by promising an extravagant assured return of 24%. Here’s the link Suchitra is looking for legal and divine help in sorting out the case. Here's a screenshot of the outcry on Twitter. Hope it creates more awareness among HNIs who blindly believe their Bankers and get duped. Jayant Pai's tweet says it all: For every @suchitrak that speaks out, there are thousands of #HNIssuffering in silence not only at #HSBC but at other foreign banks too.

Read more... [Mis-selling by Relationship Managers: The HSBC & Suchitra Episode]