When you fall ill, you will normally need some medicines to help cure you from your ailment. If it’s a common flu, then you will most likely go to the chemist and get something like a paracetamol to help alleviate your symptoms. 

The chemist will happily oblige your request and sell you the product you ask for. And he will make his money by taking a commission from the manufacturer of the drug. 

However, if the problem is more serious, you probably are not going to ask a chemist about what medicine to take. For that, you would go to a doctor. And not just any doctor, a doctor who is qualified to give you the right advice and whose opinion you trust. Typically, this doctor will charge you a fee for his opinion and most of us will happily pay the price.

The financial world is structured in much the same way. If you know exactly what you want to do with your money and are fully aware of your financial goals and how to plan for them, then there are many tech platforms and distributors available that can help you to execute your plan either for free or at a low cost. The product manufacturer i.e. the mutual fund company will take their cut from the expense ratio of the scheme, the distributor will make a commission based on the product you buy, and the tech platform will probably make their money from you somewhere else. 

But if you need help in sorting out your personal finances or just want an independent view, then going to a qualified professional who you trust can help you go a long way.

The trust here is critical. Many a time at a doctor’s office you will see a few of the pharma companies waiting outside the door waiting to pitch their new products to him and to “incentivize” him. And then when you go to that doctor for advice, you walk away with so many tablets to take that you get worried about the quality of his prescription – and probably look for a second opinion to verify.

In much the same way, you don’t want to go to a distributor and later realize that a product was sold to you based on his commission and not on your requirement. This is not to say that all distributors are bad by the way – just to make the point that financial incentives could lead to biases in product recommendations. And this is particularly why you need to evaluate if you are getting proper independent advice to manage your money and your financial goals. 

The good thing about SEBI regulations in India is that if you hire a registered investment advisor (RIA) – they can give you the option for distribution or you can pay them a fee for their services. RIAs can’t do both for any client. This is very powerful because, if you are paying fees to your advisor, that means that your advisor by law cannot take commission from anywhere else. They are therefore far more likely to give advice that is aligned with your interests.

So, is your advisor a doctor or a chemist?