The Plainspeak / Insurance

A belief · pairs with the 3 questions guide

Free advice is not free

The advice you did not pay for was paid for by someone. It was not you.

By 37xBetter · a banker's view

Your stockbroker urges frequent trades with tight targets and stop-losses. Your mutual fund agent pushes the new fund with the exciting theme. Your insurance agent steers you to a money-back plan instead of a term plan. Your bank relationship manager suggests a ULIP to save tax. Four different people, and one thing in common: each is mis-selling, and each has a reason that has nothing to do with you.

The broker earns on every trade, so he wants you trading. The fund agent gets an extra incentive on a new fund offer, so he wants you in it. The insurance agent earns a bigger commission on a bigger premium, so he steers you to the costly plan. The bank earns far more on a ULIP than on a plain mutual fund, so that is what the relationship manager recommends. Incentives decide the advice. They always have.

The fix is not to distrust everyone. It is to make sure the person advising you is paid by you and no one else. A fee-only planner charges a flat fee for a plan, takes no commission, and is tied to no financial institution. Their interest and yours point the same way. In India, check that they are registered with SEBI as an investment adviser (the register is public on sebi.gov.in); one directory of fee-only planners is feeonlyindia.com.

Paying for advice feels wrong to people trained to believe advice is free. But free advice is not free. You pay for it later, in the worse product you were sold, and that bill is far larger than any planner's fee. Across the whole cost, the fee-only planner is the cheaper choice, not the expensive one.

So before you act on any recommendation, ask the one question that cuts through all of it: how does the person telling me this get paid? The answer tells you whose side the advice is really on.

Free advice is not free. You pay for it in the product you were sold.