Most doctors who attend my talks….ask me this. I thing this comes from the fact that somebody has been approaching them with the offer of ‘financial planning’ services.

Lets face it. The number of financial planners have increased – so the need for marketing has been felt. So all and sundry are calling themselves financial planners and offering planning services. I have no clue as to how many of them are competent to offer these services, and I am really at a loss to say whether they should.

The most legitimate answer to this is, “It depends.” The key is comparing the value received from the adviser to the price you pay the adviser (like any other product). When hiring a financial adviser, it is absolutely critical, despite the difficulty of doing so, that you get good advice at a fair price. Sadly both ‘good advice’ and ‘fair price’ cannot be put in an excel sheet!

Many doctors think they should hire a financial adviser because they are busy and would rather pay someone else to deal with the hassle. Some other doctors think (and expect) a financial planner to IMPROVE their mutual fund returns.  The impression might be that it is not worth the doctor’s time and is like hiring someone to baby sit or drive the car. Unfortunately, the truth is that doing financial planning and managing your investments is more important than driving a car or cleaning the house!

Consider a typical financial advisory relationship for a doctor. Perhaps the doctor is paying 1 percent of portfolio assets to the adviser each year and has a portfolio worth Rs. 20 million, so the cost of the advice and service is Rs. 200,000 per year. (the adviser pays service tax of 15% of this and 30% income tax on this, so he nets about Rs. 100,000, but it is costing the doctor Rs. 200,000). Particularly after the initial financial planning and setup of the investments and investment accounts, the adviser may only be spending five to 10 hours a year dealing with this doctor’s investments. By doing that without an adviser’s help, the doctor would be “earning” (saving) Rs. 200,000 p.a. and that’s an after-tax figure! I know doctors make good money, but this is not a small amount, and gets bigger as the assets get bigger. Perhaps the reason physicians choose to be their own financial planner and investment manager is the cost of hiring someone to do it for them. Considering the ease of doing financial planning as compared to learning to practice medicine safely, it is a little surprising. If you are functioning as your own adviser, you need to only understand the portions of personal finance, investing, and the income tax provisions that actually apply to you. Competent, low-cost advisers can provide more value than their cost, especially early in your career. Retirement planning is far more complicated and you may decide to seek the help of a professional at a later stage in your life. Even after the plan has been designed and implemented, the adviser serves another important function: helping you stick with the plan. Think of it like going to a gym – the trainer is expensive. A good trainer can cost your 10-30k a month. The gym is a commodity – it can be Rs. 20k a year. Do you need the trainer? Its your call.

Advisory Costs can be negotiated..well it can be, that is all. And costs do matter.

There may not be enough reason to pay the “average” level of fees given the size of the portfolio. If you cannot ask for a reduction in fees, ask for more services. I know financial planners who have lawyers on their retainer and will happily help you in making a will. The will making can cost between Rs. 20k to Rs. 75k depending on the location of the lawyer. Also there could be advisers out there are willing to do it for less. Some advisers working under the AUM model will work for less than the stipulated  percent, especially as the size of your portfolio grows. I know a doctor with about Rs. 17 crores of AUM who gets a lot of service from the investment adviser including taxation, return filing – for the whole family of 4 and one set of parents. However, you can also simply pay an hourly rate for your initial financial planning and investing plan in the first year and after that a flat, relatively inexpensive (a few thousand rupees per year) ongoing asset-management fee. The advantage here is the adviser is indifferent to where your assets lie, whether you invest or reduce your liability, or even if you buy real estate by redeeming mutual funds. If you have a 8 figure AUM and are spending a six figure amount on aum based fee each year, chances are good you can lower your cost while maintaining or even improving the quality of your advice, service, and after-fee investment performance.

However some very good advisers will not come down on their fees – and you will have to take your business elsewhere. You should be prepared to move your AUM without much of a hassle but if you are getting good advisory services and hassle free execution, you need to take a call as per your convenience.