How Do Financial Planners Charge Fees For Their Services?

A financial planner will be able to help you meet your financial goals, both short-term and long-term ones. Since in India, there is no such standardization in financial planning cost, most people remain confused regarding the average cost and its related features. Not every financial planner charge an equal amount.

Before hiring the services of one, you must make sure that you understand their service fee structure and every single element covered in the fee charged. This is where you can understand the trustworthy nature of a financial planner. The right people will explain to you what value they add in exchange of their charged fees and how will they be of assistance to you. 

Let's discuss this topic elaborately below.

4 ways these planners charge fees from you 

There are different ways of charging fees from a customer. For financial planners, they have four such available options with them, to charge fees for professional services provided to their clients. Let's explore them here.

Advisory charges

What most planners do is, they charge a certain compensation for the preparation of a financial plan. However, the amount differs from one advisor to another. The payment will vary according to the value presented by the financial expert. But do remember to check them out before their selection. 

They develop a suitable plan and give them to you, along with a few other recommendations like to opt for mutual funds investment plans instead.

Commission-based charges

There are many planners who follow this fee structure. After developing relevant plans, they do not charge anything further for asset management. But they require their customers to invest in schemes like mutual funds investment plans via them. They thereby, earn a certain percentage of commission for this.

Asset-based charges

A lot of financial planners engage in client wealth management. They usually charge a certain small percentage of their assets every year for this service rendered. However, you must remain careful of those planners who demand a higher percentage for managing a greater amount of wealth. The time taken to manage two contrasting wealth figures is the same. So, there should be no hike in service charges. 

Performance-based charges

This scenario arises when a customer desires a higher return on their investments and thus hire a financial planner for the same. So, in such a situation the planner receives a basic fee for their service and in addition, they are entitled to a distinct charge, if his customer manages to receive higher returns on their investments through his guidance.

How proper financial planning assists money saving?

Money saving is something that people should immediately start doing in their life if they have not started yet! Everyone desires a wonderful life, that they can live to their fullest and enjoy every ounce of it. Saving your valuable earnings and incomes is one of the best ways to do so. So, what good will monetary saving do to you? 

One of the primary aspects of adulthood revolves around being financially independent and accomplishing the set financial targets. Living the lifestyle you desire requires proper financial planning along with a set monetary saving goal. Therefore, handling your own funds in an appropriate manner will allow you to go on with a proper saving scheme later.

How do financial planning help to fulfill a money-saving plan? 

Financial planning and money saving are inter-linked. One needs to do proper financial planning in order to do savings and then plan later on. An increasing number of people are now delving into the different financial schemes involving safe investments with high returns in India Now let me show you how it's done.

Financial framework

Where most people fail to do the correct financial planning and the subsequent money saving process is, they lack a financial system or framework. Most of us do not know the future value of our assets, incomes, liabilities, estate etc. Clarity is needed in order to make the best financial plans. 

You need to evaluate your overall money-generating assets and be clear regarding the kind of financial planning ideas you seek for your future. In case you are thinking about proper financial plan making and how to save money fast?” then consult the best financial advisor near you today!

Measurable financial goals

Financial planning and eventual money saving schemes come into the picture when you set different targets, that you want to achieve at a certain point in your life. Like for instance, you have a plan that after a few years of your work life you will leave your job and begin a business of your own.  

So, to achieve this plan, you need to start saving from now onwards and fulfill your desires later. Trying out safe investments with high returns in India are one of the best choices that you will make.

Dealing with uncertainty

Life is uncertain. You never know when bad time enters your life and snatches away your happiness! So, it goes without saying that you prepare early on and meet these dark phases with all your strength. Financial planning needs to be done in a way that you save money for such times in life. 

So, if you are wondering how to save money fast to have a secure future, then insurance and the security funds are the way to do so! Money saving through proper planning will ensure a good portion of the time is handled with ease. Uncertainties in life can never be avoided. The best we can do is prepare ourselves and face them bravely.

How ULIP Differs From Mutual Fund?

Before getting into details – how ULIP and Mutual Fund varies, it is your prior need to know the exact definition of ULIP and Mutual Fund. Once you are done with it, you can automatically list down the differences in your mind and make your investments appropriately.

Unit Linked Insurance Plan or better known as ULIP is an integrated plan that allows the investors to secure their future with both insurance and investment. A part of the premium paid by the investor is used so as to provide an insurance coverage and the remaining portion is utilized to purchase securities, in a similar manner just as the mutual funds. Therefore, you can neither call it a pure insurance policy, nor you can define it as a pure mutual fund. 

On the other hand, mutual funds offer economies of scale, high-level diversification, and liquidity, by pooling money from the investors. They accumulate money from the investors and invest them in different assets with an aim to earn a high return. Considering all these into account, wealth creation investing on mutual funds is treated as one of the most common investment options today. 

This was just a brief description of the two. Let us get into details to understand the differences.

1. Additional Features: 

Unlike mutual funds, ULIP offers a few more additional features that range from securing life with an insurance plan, switching between funds during the policy tenure, reducing or enhancing the protection level, surrendering the policy, as well as, enhancing the coverage and tax benefits. Whereas mutual funds neither offer any life cover nor you are allowed to customize any policy. On these grounds, it can be concluded that investors who are aiming for wealth creation with a certain viewpoint and are worried about that these needs may not be fulfilled if they are not present in the future, ULIP products may serve them in a better manner. Additionally, on behalf of the company, the family will also be provided with a regular income for the rest of the policy tenure.

2. Tax Savings: 

Tax benefits from investing in ULIPs is according to Section 80C of the Income Tax Act. Based on this, the tax deduction is possible up to Rs1.5 lacs maximum. The maturity income is exempted from the income tax as well as the minimum death benefit is at least 10 times the premium you invest annually. Well, if you see apparently, you will find equity funds do not allow any such benefits. However, the Equity Linked Saving Schemes (ELSS), one of the wealth creation strategies of mutual funds offer you with the same tax deduction feasibilities.

3. Charges: 

At a glance, there is no comparison between ULIP and mutual funds as such. But the main difference lies when it comes to charges. Unlike other insurance policies or mutual funds, ULIP schemes possess a long list of applicable charges that are deducted from the premium itself. These fees mainly include administration charges, premium allocation fees, fund switching charges, mortality fees, and even policy surrender charges. The more you customize the more you have to pay – that's their policy. There are even some insurers who ask for a Guarantee charge as well, in order to build a minimum guaranty under the paid policy. 

In contrast to this, mutual funds only charge for managing your investment and an exit fee, which is basically the penalty added due to selling units just after you invest in your scheme. Well, in this ground, we will say mutual funds are more cost-effective than ULIPs.

Often investors get confused between mutual funds and ULIPs and also between mutual funds and stocks. Consequently, they end up investing in the wrong palette. Hope you will not dare to repeat others' mistake. It should be crystal-cleared to you that if you are seeking for liquid from your investment as well as wanna spend less and gain more then you must opt for mutual funds. Otherwise, if you are also heading to secure your family in your absence, then we guess ULIPs are the best. Moreover, ULIPs have a lock-in period of five years, which means you are not allowed to withdraw your money within this time-period. While in ELSS mutual funds, you are allowed to enjoy a lock-in period of three years. 

Which one would you like to prefer? Whatever it may be, go through in details discreetly, get through the different portfolios, consult with experts and plan your goal accordingly.