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Financial Advisor Fees Structure, Cost & Charges in India

By:MoneyChai Financial Planning Last Updated: 14 Apr, 2020

It’s been long time since I was thinking of writing an article on Financial Advisor fees structure, cost and charges  in India.  This is a growing market that has come up in the recent past and most of us do not have that the knowledge around how much one should pay and is it worth paying the fee? What is the fee structure for first year and subsequent years?

I tried searching for the number of financial advisors in India and trust me, the list is huge. There are more than 1000 SEBI registered investment advisors in India. It was very difficult to analyze the fee structure for everyone. Also, it was quite challenging to determine if they are fee based or fee only planners. This task is now easier with the use of Fee-Only Financial Planners List to help analyze and and check the first year and renewal fee for subsequent years.

I started writing a 15-article series on 31st March 2020 about how to become a Do IT Yourself (DIY) investor? This is the 15th article of that series. If you’ve missed any previous article, no worries, you can read it here.

  1. Emergency Funds And How To Invest It?
  2. Importance Of Term Insurance And Amount Of Cover
  3. Health Insurance Beyond Corporate Cover
  4. How To Choose Best Personal Accident Policy?
  5. 5 Financial Formulas In Excel For Personal Finance
  6. Risk Profiling And Asset Allocation
  7. How To Define Your Financial Goals?
  8. Child`S Education And Asset Allocation
  9. Retirement Asset Allocation – By Age, Risk Tolerance Or Goal?
  10. Fire Retirement In India With Calculator
  11. Creating Debt Portfolio For Your Investments
  12. Creating Equity Portfolio For Your Investments
  13. Download Sample Financial Plan in PDF
  14. Portfolio Rebalancing- Shifting from equity to debt

 

Financial Advisor Fee in India - Charges & Is It Worth Paying

Financial Advisor Fees Structure

Financial Advisor fees structure is primarily divided into two parts:

  1. First Year Fee- This fee is charged by the financial planner when an individual approaches an advisor for financial planning the very first time. Generally speaking, the fee is higher in the first year.  The financial advisor needs to spend a considerable amount of time to understand the financial situation of the client before being able to come up with a robust financial plan.
  2. Renewal Fee (2nd year onwards) – At this stage, the financial advisor knows the situation of client and it is easy to review the financial plan.  Any adjustment in goals, changes in asset allocation if goals are approaching nearer or to review the funds happens at this stage. Since it takes less time to review the situation again, the fee is normally half from the first year fee.

The most important question now is: How much does a financial advisor charge?

How much Financial Advisor Charge

On analyzing the List, I realised that the range of fees that is charged varies from one planner to another.  On a broader note, the charges fall in between these ranges –

  1. Financial Advisor charges anything between Rs. 10,000 – Rs. 25,000 for the first year.
  2. Renewal fees charges are between Rs. 5,000 – Rs. 15,000

Based on the above charges, I have thought of taking an average of Rs. 15,000 for the first year and Rs. 8000 for the subsequent years as the baseline that a financial advisor may charge. Please note that I have also assumed an increment of Rs. 1,000 in renewal fee every year. ( even financial advisors have to fight inflation )

This is a broad-based fee structure just to analyze whether is it worth paying fees to financial advisor? There may be a slight variation in fees depending upon the financial advisor you choose.

Also Read : Should I surrender my Jeevan Anand Policy?

How much should you pay a financial advisor?

Before deciding on how much you should pay a financial advisor, let’s look at how much money will you pay of you decide to hire a financial advisor for a span of 20 years?

Average Finacial Planner Fee Year Wise
Year Amount( In Rs.)
1st Year 15,000
2nd Year 8,000
3rd Year 9,000
4th Year 10,000
5th Year 11,000
6th Year 12,000
7th Year 13,000
8th Year 14,000
9th Year 15,000
10th Year 16,000
11th Year 17,000
12th Year 18,000
13th Year 19,000
14th Year 20,000
15th Year 21,000
16th Year 22,000
17th Year 23,000
18th Year 24,000
19th Year 25,000
20th Year 26,000

From the baseline calculation that we looked at in the above table, you can see that you will have to pay approximately 3.4 Lakhs to a financial advisor in a span of 20 years. The first question that crops up in our mind would be – Is it worth paying that much amount?

Are financial advisor fees worth it?

This is where most of us have doubts in our mind and start questioning our choices of going to an advisor for planning. Is the financial advisor worth paying that much amount because it is an upfront fee? Is it reasonable to pay someone Rs. 15,000 upfront in the first year and that too for an advice? Does it make sense to pay someone who will then advise me on my financial situation?  Can’t I consult my family and friends for free to decide on investment plans that can safeguard my future? Let’s see how a financial advisor can help you to save money and how much?

Direct Plans Vs Regular Plans

Suppose you are investing Rs. 20,000 per month in equity mutual funds in regular plans and your financial advisor asks you to shift to direct plans of mutual funds. How much you will save in a span of 20 years

Regular Plan Direct Plan
Monthly SIP – Rs. 20,000 Monthly SIP – Rs. 20,000
Time Frame -20 Years Time Frame -20 Years
Rate of Return – 11% Rate of Return – 12%
Amount at the End of Tenure- 1.73 Crores Amount at the End of Tenure -1.98 Crores

Returns gained in most of the direct plans are 1% higher than regular plans at this point of time. It can be higher in future.

Simply put, it is a net gain of 25 Lakhs in 20 years if you shift to direct plans, Right!

Fees Paid to financial advisor – 3.4 Lakhs. Is it worth it? You decide!

If the difference in future comes out to be 1.5%, the amount at the end of tenure in direct plan would be 2.11 Crores.

Which means that it would be a Net Gain of 38 Lakhs.  Is it worth it? You decide!

What if I can only invest Rs. 10,000 per month in SIP? What would be my net gains?

The net gains would still be 12 Lakhs and you are paying a fee of 3.4 Lakhs.

 Life Insurance Policies Returns

Selling insurance policies is a tough task but people within the insurance industry know the tricks of the trade that works on general public at large. Products are designed in such a way that one day or other you will fall in the trap. It may be because of returns shown to you when markets are high or selling you endowment policies when markets are low. It is not because insurance guys are very smart, it is also because of the fact that we can be greedy sometimes or even scared.

Whatever may be the reason, let’s see how much can you gain

Endowment Policy Mutual Funds Direct Plan
Monthly Premium – Rs. 10,000 Monthly SIP – Rs. 10,000
Time Frame -20 Years Time Frame -20 Years
Rate of Return – 6% Rate of Return – 12%
Amount at the End of Tenure- 46 Lakhs Amount at the End of Tenure -99 Lakhs

The Net Gain that one would have otherwise earned would be – 53 Lakhs

Are you still not convinced?  Let’s look at another example.

Term Insurance Policies

How many of you are happy with the term insurance cover of 1-1.5 Crore? Do you think, it is sufficient?

Will you believe me if I tell you that it is never going to be sufficient with monthly expenses of Rs. 50,000(inflation adjusted)?

Let’s break this down with an example:

Your age – 35 Years

Your wife`s age -32 Years

Life expectancy -85 Years

Current monthly expenses – Rs. 50,000

At this age and with the amount of expenses, your term insurance cover requirement would be a minimum of 2.5 Crores which excludes your goals for child education, child marriage and other loans.

Are you still happy with your term insurance coverage of 1 crore?  Do you still feel that that it is wrong to pay a small amount of fee to a financial planner? Would not you like your family to be financially secure, especially when you are not around?

Tax Efficiency

As an Indian Resident, I have 15 Lakhs in fixed deposits (FD) as part of my debt portfolio and I fall in the tax slab of 30%. With 7% interest rate of FD, I am earning an interest of 1.05 Lakhs per annum and I am happily paying close to Rs. 35,000 as tax. Why?

My financial advisor asked me to shift my investments from FD to debt mutual funds and this saved half of my tax. I was previously not aware that debt mutual funds can help me to save tax (not going in exact calculations)

I clearly saved my fee. Is it still worth paying fee? You decide!

However, this is completely opposite in case of NRIs.  For them, FDs are better source of investment than any others since it is Tax Free in India and most of the countries.

Health Insurance

Financial advisors push you to the extent that you start getting frustrated. Normally, what they push you for is to purchase a health insurance policy. No matter how much are you covered by your employer, they will still ask you to purchase a separate health insurance policy. Their only reason, helping you out during your retirement days. Your entire retirement corpus can go for a toss if you do not have a high cover health insurance policy.

If you do not buy one for yourself, you are going to pay much more in your life time than the fee paid to a financial advisor.

Asset Allocation

This is a big area of concern even for DIY investors. You may be investing in direct plans of mutual funds, having enough term and health coverage, but what about your asset allocation? Most of the investors run behind returns. In this process, they forget that they require corpus at some point of time and they have to forget returns at that point of time. What will you do if you are getting returns of 20% and still do not have required corpus for the desired goals? Or what if in the process of running behind the returns, you do not move from equity to debt at the desired time? Your whole idea of investing is of no use. Does this make any sense?

This is where you will require the help of a financial advisor.

 There is a big list which I cannot cover in details here. Financial advisor can help you in

  • Stopping you from buying a second house for investment purpose
  • Suggesting you to purchase a personal accident policy
  • Helping you decide your goals
  • Stopping you buy return of premium term plan
  • Consolidating your mutual funds portfolio

Is it worth hiring a financial advisor?

Now, you tell me, is it worth hiring a financial advisor? Yes or No?

Are financial advisor fees worth it

Emotional Dilemma in Investing

The above-mentioned points were only about returns or security for you and your family. But do you think that you have the patience of staying invested for 20 years. Most of the investors do not have. Our general mentality is that when the markets go up, we want to invest more, and when the markets go down, we want to withdraw. In case of any financial emergency, we want to withdraw. In other cases like if I want to a home, I want to withdraw.

Financial advisors helps you to stay calm, stay invested. That is the most important trait which can help you to achieve your goals and help you to become wealthy. Yes, there are exceptions always. If you have everything mentioned in the article, you also should join the league of financial advisor.

I know, it is a long article but if you still want to read some FAQs, go ahead

How do financial advisors get paid?

There are 2 ways financial advisors get paid

Fee Only Financial Advisors – Flat fee from the client, no commissions – Hire Them

Fee Based Financial Advisors – Fee + Commission from the products they sell – Avoid Them.

What percentage should a financial advisor charge?

If you look at it from my point of view, a financial advisor should not charge you a percentage of your assets. For example, if your financial advisor is asking you to invest 1 Lakh per month in FD, do you think it is wise for him to charge some percentage on this FD as well? Is he helping you to get better returns on your FD? If not, then why charge the percentage cut off.

How much commission do financial advisors make?

Fee only financial advisor make nothing from commissions.

Fee based financial advisors – No idea, it depends on the products they sell. If they are selling you an endowment policy, the commission can be as high as 35%.

Is financial advisor fee negotiable?

Do you negotiate with your bank to increase/decrease your FD rates? Similarly, what difference will it make if you plan to negotiate Rs. 1000-Rs. 2,000.

Please, do not do that. I am talking about fee only financial planner only.

For fee based, I am not sure if they reduce your fee and get better commissions from the products they sell.

Is it a good idea to have a financial advisor?

Yes, it indeed is a very good idea. You should be in a better position to answer this question. ( I hope you have read the complete article)

What can a financial advisor do for me?

I have explained everything in detail. Do I need to tell more?

Do banks have financial advisors?

Of course, Yes. They are called relationship managers, who sell you the commission-based products. Use banks only for banking, not for products.

How do you pay a financial advisor?

By cheque, online transfer or its better you ask your financial advisor- Sir/Ma’am, how should I pay you?

How do I find a financial advisor for retirement?

Find a financial advisor for complete financial planning, retirement would anyways be included in it. Please note that it is difficult to plan only for retirement without understanding other goals.

How much money do you need to have a financial advisor?

Just the advisor fee, that is the amount you need to have a financial advisor. There are chances that you may only have monthly saving of only 10,000 but you want to start investing. It is just the beginning but you can still approach a financial advisor who can guide you towards achieving your financial goals.

Do you have to be rich to have a financial advisor?

Absolutely not. Financial planning is still at very nascent stage in India. The financial advisor fee is very low. You do not have to be rich to have a financial advisor. You just need to decide that you want to have one.

Do you still feel that financial advisor fees in India is high and it is not worth paying.

Do share your views and keep investing.

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Filed Under: Financial Planning

MoneyChai

Hi, I am Ajay Pruthi, an alumnus of NIT Jalandhar and K.J. Somaiya Institute of Management Studies. I have over 10 years of experience in the field of insurance and have worked with top two private insurance players in the country. I am a Certified Financial Planner and currently working as a Paraplanner with Mr. Melvin Joseph, founder of Finvin Financial Planners. If you liked my blog and want to discuss further on comprehensive fee only financial planning, feel free to get in touch by visiting Finvin Financial Planners.

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Reader Interactions

Comments

  1. investmentdost says

    February 18, 2019 at 12:30 pm

    nice article and a thorough analysis. it does give perspective to common people to make up their mind regarding hiring of financial planner. you are actually doing favors to the FP community :).

    Reply
  2. Suresh says

    February 22, 2019 at 6:53 am

    So finally we have to provide employment to FP whether we get expected returns or not. Already MFs are charging fees for fund manager and again investor have to pay money to FP who is assessing performance of fund.FP is not a GOD to make a person rich.Your article is only encouraging FP by giving numbers..Realty is different than theory.Will FP takes responsiblity of something back fires even after waiting long term? It is foolish to invest money based on other persons suggesions.Everyone should take care of their money.If something goes wrong FP would not take responsibilty then investor becomes scape goat.FP becomes rich..

    Reply
    • MoneyChai says

      February 22, 2019 at 9:00 am

      Hi Suresh

      Yes, you are right. “Everyone should take care of their money”. It is always your choice whether to hire a financial planner or not. If you do not trust them, do it yourself.

      Reply
      • Suresh says

        March 12, 2019 at 8:04 am

        Yes..That is the same i said.Instead of trusting others and investing our hard earned money and regret after , everyone better to educate themselves on financial matters.

        Reply
        • RP says

          July 21, 2019 at 8:25 pm

          And looking at the quality of FPs in India – what would one say? Forget about back firing etc – basic issue is about knowledge – especially as far as those persons are concerend who have experience & knowledge of handling their finances, looking up and reading extensively on blogs etc. Can persons with experience and knowledge of investing etc comment about their personal experiences of appointing FPs and continuing and renewing with them?

          Reply
          • RP says

            July 21, 2019 at 8:27 pm

            Kindly read the article on this very blog about when you do not need comprehensive financial planner which has not been mentioned in this article

            Why do they charge entire fee in advance for the year? Can’t it be linked to service performacne & satisfaction in instalments?

  3. Sivakumar says

    March 16, 2019 at 9:12 am

    Very open and friendly.

    No room for doubts. Wish this trend continue with other websites.

    Reply
    • MoneyChai says

      April 6, 2019 at 1:13 am

      Thanks Sivakumar.

      Reply
  4. DR says

    April 27, 2020 at 4:54 pm

    Hai, just wanted to check to FPs charge monthly subscription or renewal payments for SIPs?

    Reply
    • MoneyChai says

      May 9, 2020 at 8:45 pm

      No. They ask you to invest in direct plans of mutual funds.

      Reply
  5. Mhaske says

    June 15, 2020 at 10:06 pm

    HI my FP is charging 25k and he is saying, I can buy myself the health insurance, term insurance, mutual funds etc that are suggested as per the plan or he can manage with his team, but in that case their will be commission involved. Kindly advise what is better. Thank you for the nice article.

    Reply

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About Us

Hi,
I am Ajay Pruthi, an alumnus of NIT Jalandhar and K.J. Somaiya Institute of Management Studies. I have over 10 years of experience in the field of insurance and have worked with top two private insurance players in the country.

I am a Certified Financial Planner and currently working as a Paraplanner with Mr. Melvin Joseph, founder of Finvin Financial Planners.

If you liked my blog and want to discuss further on comprehensive fee only financial planning, feel free to get in touch by visiting Finvin Financial Planners.

 

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