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Why Aren’t Financial Advisors Using Fee-Based Models?

By Niraj Nanal, CFP 

The Indian financial services industry has come a long way; regulators are more active, financial markets are developing, etc. But, what is the state of the most important stakeholder, financial advisors, in this whole process?

Financial advisers have come a long way from working as part-time insurance agents, but when it comes to charging fees from clients, financial advisors still seem to be hesitant. What are the possible reasons for advisors not moving to fee-based business models?

Breaking Traditions

In India, paying fees for financial advice is still a new concept. Most people need role models or demonstrators to start believing in something. Sadly, in India, there are not many advisors who charge fees, yet. Therefore, many advisors don’t believe that people will pay for financial advice. Charging fees is the next big step the financial advising profession needs to take. Just a few of us making the change in our business model will create momentum for other advisors to follow.

The Technology Trend

As mentioned earlier, the Indian Financial service industry is changing quickly. From the banning of entry load on mutual funds to dropping the commission on ULIP, the trend is clear cut: financial product distribution needs to be more transparent and customer-centric. Technology is quickly replacing humans. One of the most evident examples is the substantial increase in sales of online insurance plans. Mutual funds are also following the trend of increased online transactions. Yet, many advisors are in self denial. As it is very difficult to get out of their comfort zones, they have taken the “easy” route of burying their heads in the sand.

Professionals Need to be Certified

It is well-known that professionals charge fees, whether it’s a doctor or a lawyer, but another important aspect of professionalism is being qualified or competent in the subject matter. A doctor must complete their M.B.B.S, and a lawyer must complete their LLB before practicing. In a similar fashion, financial advisors must complete their professional education. I think earning the CFP certification is the first step in that direction. After completing their professional education, advisors will feel more confident to position themselves as professionals and charge fees.

Lack of Awareness

The main reason, in my opinion, that fee-based practices aren’t a common model yet, is the lack of awareness amongst professionals. I think all stakeholders, from regulators to financial advisors, should come together to create awareness about the importance of unbiased and independent advice.

It’s high time that we value our own profession and respect our own worth.

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