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Financial Planning Challenges Similar in India and U.S.

India MapIn the airport shuttle taking us to our hotel in Mumbai, I looked out the window and thought, “We’re not in South Dakota anymore.” It was midnight and the streets of India’s largest city seemed as full of people, vendors, and traffic as Time Square at noon.

I had no real comparison, though, for the garbage strewn about, the beggars going from car to car when traffic stopped, the people sleeping on the sidewalks, the ramshackle condition of most buildings, and the roaming packs of stray dogs. The third poorest county in the US is just 60 miles from my home. It’s no match whatsoever for the real ghettos of Mumbai, where 55% of their population of 16 million live.

Given these great dissimilarities in economic status as well as political, religious, and cultural views, I expected to find striking differences between the Indian and U.S. financial advisor communities and their clients. Here is where I was surprised.

I traveled to Mumbai as a consultant to meet with a group of Indian financial advisors. After spending several days observing and listening to their struggles, I concluded 95% of the obstacles they face in promulgating client-centered, fiduciary planning are the same as planners see here in the US.

The most frequent complaint I heard was that consumers just won’t pay fees. They would rather pay a high commission they don’t see rather than a low fee they painfully do see. I find the same behavior in US consumers. It seems irrational, but it makes perfect sense when we understand the delusional money script of avoidance that says “If I don’t see the fee, then I must not pay a fee.”

Just as in the US, Indian advisors struggle to help consumers understand the math behind hidden commissions and visible fees. While most advisors can quickly calculate the amounts, consumers still find it hard to accept the numbers. There is great resistance to writing a check, even when a planning fee is half as much as an unseen fee or commission.. In my experience, most consumers have great difficulty emotionally understanding that writing a check for $10,000 for advisory fees on $1 million represents a $15,000 savings on a 2.5% wrap fee they don’t see and for which no check is written.

Another similarity is that those most willing to pay fees for service are the wealthier clients. I find this, too. At first blush one might surmise that of course the wealthy are more open to paying fees because they have more money. That isn’t the case. The fees paid are roughly proportionate. In fact, usually smaller accounts that go fee-only save proportionally more than do larger ones. The difference is that affluent or wealthy clients tend to be business owners or professionals who are familiar with employing fee-for-service consultants, like accountants and attorneys.

The transition to introducing fees is slow, requiring a lot of education on the part of the advisor and willingness to listen by the consumer. Similar to where the US was in the 80’s, India has only a handful of pioneering fee-only planners. Most advisors wanting to switch from pushing financial products to doing comprehensive financial planning have rolled out a fee-based model first. They hope consumers will eventually embrace the advantages—lower costs and lesser conflicts of interest—inherent in a fee-only compensation model.

I did find one significant difference from the US. In India, financial regulators are actively encouraging advisors to change from charging only commissions to charging fees. This support for a fiduciary standard may well help comprehensive financial planning become a strong profession.

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