Money Tree
Cost of Free Advice is more than One Crore!
By Ranjan Varma
Why pay for financial advice when you can get it for free? You get it free from friends, colleagues, relatives, bank executives and insurance agents, right?
But have you ever wondered that the free advice might cost you a lot of money? For example, if you buy costly insurance plan that you don’t need or a mutual fund that does not suit your investment profile, you will lose much more than the annual fee of a financial planner. True Financial Planners are not Advisors or Product Sellers and they prepare a Financial Plan that is based on your need, your situation, your goals and your risk appetite.
Jokes apart, let’s do some maths to find out the cost of free advice. Let us assume that a paid financial plan where the recommendations are not based on commission considerations will fetch you a better return. If you are prepared to assume this, let’s move forward.
Here are the assumptions. Imagine you invest Rs 15000 every month and that adds up to Rs 1,80,000/-. We have assumed the returns for 8% and 10%. Generally the commissions work out to just 2% of your investments and the difference between the returns @ 8% and 10% would be the cost of free financial advice.
Initially the difference looks too small. It is only Rs 3600 in the first year and approximately Rs 68000/- for an investment of Rs 9 lakhs after 5 years. But the difference continues to compound and the difference of Rs 1,05,47,560 happens at the end of 30 years!
Here’s the table that calculates the cost as Rs 1 crore, 5 lakhs, 47 thousand and more!(Rs 1,05,47,560/-)
| Investment | Growth @8% | Investment | Growth @10% | Difference |
| 180000 | 194400 | 180000 | 198000 | 3600 |
| 374400 | 404352 | 378000 | 415800 | 11448 |
| 584352 | 631100.16 | 595800 | 655380 | 24280 |
| 811100.16 | 875988.1728 | 835380 | 918918 | 42930 |
| 1055988.173 | 1140467.227 | 1098918 | 1208809.8 | 68343 |
| 1320467.227 | 1426104.605 | 1388809.8 | 1527690.78 | 101586 |
| 1606104.605 | 1734592.973 | 1707690.78 | 1878459.858 | 143867 |
| 1914592.973 | 2067760.411 | 2058459.858 | 2264305.844 | 196545 |
| 2247760.411 | 2427581.244 | 2444305.844 | 2688736.428 | 261155 |
| 2607581.244 | 2816187.743 | 2868736.428 | 3155610.071 | 339422 |
| 2996187.743 | 3235882.763 | 3335610.071 | 3669171.078 | 433288 |
| 3415882.763 | 3689153.384 | 3849171.078 | 4234088.186 | 544934 |
| 3869153.384 | 4178685.655 | 4414088.186 | 4855497.004 | 676811 |
| 4358685.655 | 4707380.507 | 5035497.004 | 5539046.705 | 831666 |
| 4887380.507 | 5278370.948 | 5719046.705 | 6290951.375 | 1012580 |
| 5458370.948 | 5895040.623 | 6470951.375 | 7118046.513 | 1223006 |
| 6075040.623 | 6561043.873 | 7298046.513 | 8027851.164 | 1466807 |
| 6741043.873 | 7280327.383 | 8207851.164 | 9028636.281 | 1748309 |
| 7460327.383 | 8057153.574 | 9208636.281 | 10129499.91 | 2072346 |
| 8237153.574 | 8896125.86 | 10309499.91 | 11340449.9 | 2444324 |
| 9076125.86 | 9802215.928 | 11520449.9 | 12672494.89 | 2870279 |
| 9982215.928 | 10780793.2 | 12852494.89 | 14137744.38 | 3356951 |
| 10960793.2 | 11837656.66 | 14317744.38 | 15749518.82 | 3911862 |
| 12017656.66 | 12979069.19 | 15929518.82 | 17522470.7 | 4543402 |
| 13159069.19 | 14211794.73 | 17702470.7 | 19472717.77 | 5260923 |
| 14391794.73 | 15543138.3 | 19652717.77 | 21617989.54 | 6074851 |
| 15723138.3 | 16980989.37 | 21797989.54 | 23977788.5 | 6996799 |
| 17160989.37 | 18533868.52 | 24157788.5 | 26573567.35 | 8039698 |
| 18713868.52 | 20210978 | 26753567.35 | 29428924.08 | 9217946 |
| 20390978 | 22022256.24 | 29608924.08 | 32569816.49 | 10547560 |
We will also talk about the other costs like cost of buying a product you don’t need, cost due to lack of holistic financial planning, cost of buying term insurance from an agent compared to buying it online, etc. Stay tuned for the updates on the cost of free advice.
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Ranjan Varma, Founder, RupeeManager believes that learning is a continuous process and does not agree with the adage that you can’t teach an old dog new tricks. Approaching the age of 44, he left his job in a PSU and now is a blogger and editor of a Personal Finance website , is building financial management software and conducts RupeeCamps. His writings are also available on :http://ranjanvarma.com
He thinks it’s possible to start a new business after 40, run a marathon at 50 and re-wire your brain after 60. It’s not easy and that’s why it’s worth doing.
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