Beware Of ‘Free Financial Advice’ While Investing Your Hard-Earned Money

-Anand Krishnan

Recently, I was in a conversation with a financially successful professional about his investments. He was happy to mention that he is getting advice from a boutique financial advisory firm. When I enquired about the fees, he mentioned that the services were “free.”

We all live in the real world where we know there is no free lunch. So, I followed it up with another question on the revenue model for the firm since this was a “for-profit” advisory firm. He responded that they get a commission on financial products that they were recommending.

I was surprised by his response and posed the following additional questions for which the answers were only evasive:

– How will you trust the recommendation on a financial product where the advisor makes a commission on the product that he is recommending?

– Will the advisor always recommend products that are in the best interest of the investor?

– What is the guarantee that the investor is getting the right advice on the best possible investment opportunities?

While all of us have to place trust in our financial advisors, we should also ask ourselves some basic questions about the credibility of such advice. It is very important to ascertain the quality of advice.

A fixed fee does not assure the best quality; but you should exercise a high degree of caution when these financial product-pushers sell ‘free advice.’

When you engage the services of a financial advisor ensure you do the following:
– Link at least a portion of the fees to portfolio performance
– All commissions earned on financial products recommended by advisors to accrue to your account

Many of the small business owners are willing to pay a fee for obtaining a loan from financial institutions. But when it comes to investing their hard earned money, they have reservations about a fee-based service and look for “free advice”. Do you want to engage the services of quality financial advisors or continue to get sub-optimal “free advice”.

Happy Investing !

(Anand Krishnan is a Chennai-based Chartered Accountant and is reachable on anandkris17@hotmail.com. The views expressed in this article are those of the author and do not represent the views of Channel Times or any of the websites managed or operated by Trivone Digital Services)