Question: Why do we pay a fee to a lawyer / doctor and most times don’t even ask our agent/broker for his charges?
Answer: Lawyer saves & protects you / your interest and a doctor cures you from ailments. Both give personalised and specialised advice. You don’t have to pay the agent because though he gives you personalised service he does not necessarily provide specialised advice and / or service. A lawyers or doctors services are not easily replaceable but there are thousand’s of agents who are willing to sell to us their products.
If you are thinking on the same lines you are absolutely correct but all the same we need our agents and we also need them to give us their services. If they can give us specialised advice we are also willing to pay them isn’t it?
The question is how choose the lemons amongst the peaches. Here’s your question bank:
Insurance:
These days buying life insurance itself is a risk as you can never say for sure if you have been sold the right product. Here are some basic guidelines to help shield you.
- Ask the agent – what is the “type” of policy he is recommending? Except for a ULIP or Term insurance no matter how good the packaging is or how nice or how rosy the agents makes it sound – simply eject from that conversation. Close the matter there itself. Policies like endowment, money back and whole life are wealth destroyers today. If the agents tries to sell you this – that’s bad advice.
- For ULIPs – Ask your agent – What is the minimum premium to be paid for the ULIP policy that you have or are planning to buy? How much are you actually paying? If it’s more than the minimum premium, well someone is making money by misguiding you. There are ways to get around – ask for minimum premium + top-up option. This works out to be far cheaper for you as your loads and expenses are lower but the agent may not like it – he loses commission. ULIP is a good idea but not for all; whether to fundamentally buy or not depends on your age, life stage and tenure of your financial goals – if the agents tell you this – that’s good advice.
- For Term – Ask you agent – Is this the best deal? Does your company provide me the cheapest premium and if not – what are the additional benefits or compelling reasons to buy from you? Term Insurance is a good idea but how much insurance to buy depends on your beneficiary’s capability to generate returns, your budget circumstances, future of your liabilities and overall financial situation. Again if the agents tell you this – that’s good advice.
- I shall write about pension policies later but for now please go back and have a look at your insurance policy portfolio.
Investments:
- Ask the agent on what is the best investment to do? It is easy to identify product and commission driven agents – If immediately or within 2 minutes of meeting you if they jump into any product talk and sales mode just press the eject button and don’t waste further time. Unlikely that the person can really guide you well so meet the next person. You have to shop a little here.
- Ask the agent – To comment on your current investment strategy? If he tells you what your asset allocation is and how it will help you, which product will be of use to you, which is irrelevant today, which to retain (equity shares included) – that good advice.
- Ask the agent – What is the right strategy for me? If you agents is knowledgeable and can educate you on your strategy – current and future, asset allocation required, your risk return framework and what should be the methodology suited for your requirement then – that’s good advice. If he can show you a method to build wealth consistently over the next 20 or so years or as long as you want – that’s good advice.
Comprehensive Advice:
- Ask the agent – What areas will he be able to give you advice on? If he can take care of everything i.e. budgeting, cashflow management, tax efficiency, insurance requirement calculations, retirement funding estimates, children’s career funding, goal funding and planning, estate planning, portfolio management – that is ideal. If he is well qualified he will be able to offer you wholistic and comprehensive advice – that will be good advice.
- Ask the agent – What is his method of working? This speaks of his dependability and capability. You need someone who can take care of things while you are busy with your own work and he is easily available or someone is available to answer your queries and concerns as they arise.
- Ask the agent – How does he keep his knowledge updated? The Power of Knowledge can be easily seen – in the fist 2 minutes of conversation even if it’s over the phone. If the person has a system of doing research, uses technology and can demonstrate that – then that’s good news.
- Ask the agent – How will he monitor and what technology support he uses? Will he keep you updated and if yes – how? Please take time to understand agents systems & processes for execution of your portfolio. If there are none – its bad news. If the agent can monitor your affairs independently – that’s being able to get good advice.
Remember you are not asking for much – this is quite a standard practice in most developed nations around the world. A good advisor must be able to answer to your satisfaction – only then would you judge & hire him to manage your hard earned money – Isn’t it?
Shortcut – if you want to skip the above – Look for qualifications & credentials and if the person is someone who is not connected with any institution there will be no chance of any bias and most likely you will get – Good Knowledgeable Advice.
What should be the ideal fees of an agent? Should it be towards the high end or low end?
And the most important… When do i pay the agent? After getting his advice or after getting results?