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Why should I pay for a financial plan? - Outside View by PersonalFN
Why should I pay for a financial plan?

Financial Planning has become one of the hot topics in the media today. People too are inclined towards knowing more about it and we have seen drastic increase in the number of inquiries we receive every day for the same.

Even before discussing the benefits and how a financial plan can help, one of the major objections we face during our interaction with almost every individual is, "why should I pay for making a financial plan?" This objection comes from the fact that a Financial Plan is being made for Free or a minimal Fee by some financial planning companies or even individual financial planners.

We don't blame them for asking this question or thinking this way, as the objection comes mainly from ignorance of knowing the benefits of a Financial Plan or knowing the limitation of a Free Financial Plan. So we thought, why not address to this objection through this article.

So let's learn more about a Financial Plan...

  • What does a Financial Plan provide?

    A Financial Plan will help you to:
  • What are the benefits of a Financial Plan?

    Through our experience we can say that people have a misconception about financial plan and consider it only as a mode of investment. But trust us, financial planning has got much more value attached to it and is in your financial wellbeing. You see, to put in brief, a financial plan includes:

    • Assessment of your Risk Appetite
    • Assessment of your Contingency Requirement
    • Assessment of your Life Insurance Requirement
    • Restructuring of your Existing Loans
    • Review of existing Mutual Funds
    • Review of existing Life and Non-Life Insurance Policies
    • Analysis of Future Cash Flow
    • Planning for Financial Goals such as House Purchase, Child Education, Child Marriage, Vacation, Retirement etc.
    • Defining Asset Allocation for your Financial Goals
    • Rebalancing of Portfolio
    • Recommendation on New Insurance Policies and investment recommendation
    • Action Plan
Moreover, a true financial planner would also conduct frequent review of the financial plan charted for you, so as to ensure that you effectively meet your financial goals.

So there's indeed a difference between a Free Financial Plan and a Paid Financial Plan.
  • What is the difference between a Free Financial Plan and a Paid Financial Plan?

    Before we address this question, we would like to bring to your notice that there are no free lunches. Nothing comes for free. If a financial plan is offered to you for free, the quality of the same is questionable and poses a risk to your financial wellbeing. This is because the planner who's offering you such a plan may be advising financial products which may not be suitable for you and your financial wellbeing, but on the contrary be in his interest (through big fat commissions!) leaving you in lurch.

    You see, if there are some planners who are charging you a fee for making a financial plan and some who are providing it for free, then there has to be a huge difference between what each of them offer you.

    One big difference is the scope of a financial plan which determines the fees to be charged for it. If a financial plan does not include the above mentioned benefits then a financial planner might charge you a minimal fee or might give it to you for free as well.

    The other and the biggest difference between a free and a paid financial plan, is the way a financial planner will charge you. If some financial planner is charging a flat fee for making a financial plan without any obligation for making investments through them then there are higher chances that all the recommendations he provides you in a financial plan will be all unbiased. But if a financial planner is giving you a free financial plan then it should be an alarm for you. You should ask yourself why will he provide it to you for free, what benefit will he get out of it? The answer is very simple; all the recommendations he provides you will be biased and commission driven. These recommendations might or might not solve your financial objective(s) but at least it will ensure that they (financial planners) are getting paid for their service.
So the next time you jump on a proposal to make a Free Financial Plan, think upon the aspects which we've discussed. So, it's not just important to make a financial plan but also very important to select the right financial planner.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.


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1 Responses to "Why should I pay for a financial plan?"


Jun 28, 2014

Next time somebody offers to make a free Financial plan for you, ask the planner what he /she stands to gain from it-- specifically, how much commission he/she will earn if you follow the planner's recommendations-- watch closely the reaction and you will be surprised how the planner tries to avoid answering this question!!

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