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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/-)
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