SEBI’s directive, removing entry loads on mutual funds from August 2009 has now put the onus on investors to decide how much their distributors’ services are worth. On their part, many distributors have prepared a tariff of rates for their services.
Since both sides are on the process of price discovery, various models are being tested in the market on which fees can be calculated. Some distributors have decided to offer free services for certain asset sizes while there are a few who charge a fee for every transaction, others with a deeper relationship charge annual advisory fees.
For the investor, these are confusing times as they try to figure out how much fees to pay and what kind of service to expect.
The beauty parade
The first step is to identify the right advisor. The best way to seek a reference from someone who is happy with his advisor’s services. You also need to figure out if he is competent enough to service the areas that you are looking at.
For instance, if you are a sophisticated investor and would like access to structured products, you need to know if your advisor can offer you the same or not. “It is very important to get the right advisor first, as the quality of the advisor can make a huge difference to your portfolio,” says Vishal Kapoor, head of wealth management at Standard Chartered Bank.
He further adds that the maximum fee difference between advisors would be a maximum of 200 basis points, which is negligible when compared to the impact a portfolio can have, based on the quality of advice.
A la carte
Broadly, there are three services which a financial planner provides to a client. The first part is the most crucial since it involves understanding the customer, diagnosing his needs and making a financial plan for him.
The second service provided is that of execution of the plan, wherein the advisor helps you in buying, selling redeeming, and such other operational aspects. The third service provided is the periodic review and advice given. Before you get your prescriptions from your advisor, find out what is the kind of service that he is offering.
Fees
When it comes to paying fees, there are various models available in the market today. There are financial planners who could make a detailed financial plan for you at a cost of Rs 2,500, while if it increases sophistication, the fees could extend up to Rs 15,000.
Once your plan is done, you could execute it through the same person, or use another organisation. Just like every doctor or lawyer is different and charges as per the value he gives you, so does an advisor. Then there are banks that charge fees based on the number of transactions the client does, or as a percentage of the average assets that the client maintains with them.
Take the case of ICICIdirect. Here if you have assets worth Rs 8 lakh with them, the services offered are free. However, if the assets with them is less than Rs 8 lakh, they charge you a transaction fee of Rs 100 for every transaction you do with them. Personalfn, which provides advisory services, could charge you anywhere upward of Rs 5,000 per annum, depending on the size of assets you maintain with them.
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