The Real Cost of FREE Financial Advice

Financial planning is no longer an alien word nowadays, and investors appreciate this approach towards their personal financial management. After all this exercise helps them look at their overall finances holistically and take necessary steps towards their financial wellness.

But even when they are not receptive to financial Planning, the confusion still lies with Who the Real advisors are and How much is the Right Fee? Of course, when it comes to paying fees, every person seeks for FREE Service or like to pay the least. And this is where they get caught up with Mis Selling Or Mis Buying.

In today’s digital age, free financial advice is just a click away. From social media gurus to friendly advice from family and friends, and even enticing offers from investment platforms, the abundance of financial guidance seems like a boon, the allure of obtaining financial wisdom at no cost seems too good to pass up. But is it really free?

As the Saying goes – If something is coming for FREE, You are the Product. Same thing applies to financial advice

Let’s dive into the Real costs of this “free” financial advice that many people overlook. (Read: Questions to ask before selecting financial advisor in India)

There are different Sources of So called FREE Financial Advice and below are some prominent ones.

  1. Social Media : Sometimes I feel that Financial Management seems to have become so easy that every second person has an opinion on Stocks, Mutual funds. And if their opinions deliver the desired result, then slowly they will be treated as experts in that domain, and gain popularity and following from the advice seekers.
Free financial advice on social media

The point here is not about the advice givers but the risks that are posed on YOU, i.e. the advice takers, who in the lure of making money fast or to avoid Fee based advice, tend to follow the views shared.

Even if that view has come from a genuine and professional expert, it is risky to follow the same because that is just a View, which lacks personalization. 

Social media advice is typically generic and not tailored to your specific financial situation, goals, and risk tolerance. What works for one person may not work for another, and blindly following generic advice can be detrimental.

Any registered professional will refrain from giving any advice on social media or to the general public, as regulation in the country does not permit it. (Read : How to find Best Online Financial Planner for you?)

It is only those with short term focus and with ulterior motive to gain more followers and engagement.

Social media often emphasizes quick fixes, trendy investments or market speculation. No long term , financial planning oriented investor would ever read such stuff, as all this contributes to information overload, causes anxiety and divert  their focus away from their goals.

Many of your actions comes from confirmation bias, where you selectively pay attention to information that supports your views, potentially missing out on the diverse perspectives.You do not bother to ask or verify the credentials of the person tweeting or asking you to join their telegram group, if you have made money on the past tip.

It’s not difficult to understand, social media experts do not come with any accountability, and following all such tips and views bother your personal finance.

Always remember, that social media can be a valuable source of information and insights, but it should complement, not replace, a well rounded approach to financial decision making that includes professional guidance and independent research.

  1. Finfluencers:

YouTube and Instagram are full of Finfluencers. These are those people who try to influence people’s decisions on their Financial matters. Many investors feel that YouTube is a place where financial advice is readily available and that too for FREE, without realizing the fact that these people are just content creators looking to gain views and likes.

Free financial advice by you tubers

You tube is not FREE. You pay for it in terms of your attention and time. When you give your attention and follow these Finfluencers, these people are paid by you tube. And many times depending on their following many companies hire these Finfluencers to endorse their product, by of course saying good words about them and showing limited and influencing information. And here comes the conflict of Interest.

Many newspapers have published a detailed research on them , and even SEBI is considering coming out with some regulations on people misleading public

Some finfluencers are professionally qualified , but rather than practicing what they know and advising people personally, they prefer this route better as it lacks responsibility and no liability on them. 

These people are not regulated like SEBI Registered Investment Advisers and are not legally obligated to provide accurate, unbiased, or up to date information. 

Being a content creator, they follow the market trends or prepare videos based on their personal financial interest or tie up with some product manufacturer. 

In bullish times you may make money, which strengthens your faith and belief in these people, and you will start following their every video. But when the tide settles, they will change their content but you are left with your losses. 

  1. Friends and Family:

I have never seen this group of people giving objective and holistic advice. But even then they always come as a first level of advisers for each and every person entering a financial life. Their advice is always situational. 

Free financial advice by friends

Like why don’t you buy a house, real estate prices are rising. You should not Invest in Equities, it is very risky. Invest in PPF, its tax free or LIC is the best and safe Investment. Sometimes your peers tell you their successful investment story, and you get sold to their advice to buy small caps, cryptos, unlisted shares and what not.  

Both are the extremes. It’s not that they don’t think well for you; but they have their own biases and personal financial experiences that influence their advice.

They might suggest that has worked for them, but that doesn’t mean it’s suitable for your unique financial situation and goals.

They may not have (sometimes you yourself don’t want them to) a comprehensive view of your financial situation like your Income, expenses, debts, long term goals…so advice with limited information, from people with lack of expertise and coming from an emotional side may not work over a longer time frame.

  1. Investment Platforms:

These days you do not invest by filling the forms. You have yourself registered with varied investment platforms, and invest online or through their mobile apps.

Free financial advice on investment platforms

To keep their users engaged these platforms provide FREE “financial advice” through some calculations which they call as financial planning, best performing funds and stocks, and sometimes as they call “Research driven recommendations”.

While all this seems enticing, it’s crucial to understand the potential pitfalls and risks associated with relying solely on this advice for personal finance decision making.

These platforms are not devoid of conflict of Interest. It’s not difficult to understand that no company can sustain without income. So if they are not charging anything from you what is their income model? Who is paying them? And why? What are they getting in return? Is it a commission from Product manufacturers? Or is it your data which can be used to pitch you different other products or are they encouraging you to trade more and keep churning the portfolio so they earn more brokerage? 

Besides Conflict of Interest, these platforms work on “One size Fits all’ approach, and thus the investment advice would be very generic, without considering your unique financial goals, risk tolerance and time horizon. Following such advice without customization can lead to investments that are not aligned with your needs.

These investment platforms work on the psyche of the investors and based on the transactions they do and actions they take. Their algorithms come up with specific pitches to make. They know that Fear and Greed drive your behavior.

Remember that FREE advice is often a starting point, but it should not be the sole basis for your investment decisions.Building a SOLID financial future requires a thoughtful, well researched approach that takes into account your unique circumstances and goals.

  1. Relationship Managers, Product Agents:

When you have no idea on how to make investments and are not exposed to any of the Investment platforms, then you meet these people in your bank or through your Friends and family references.

Financial advice by Relationship managers or product agents

You will be suggested with Insurance solutions, or only those products where the product seller is associated with. You consider this as a FREE advice and buy those instruments. (Read: MFD or RIA, who should you approach for financial advice?)

As we discussed in the pointers above, you should know that nothing comes for FREE, and you are the one who is paying them (Directly or Indirectly), without realizing that it’s not the monetary cost that you are paying but you may also be compromising with your financial future, by investing in non suitable investments.

Conclusion:   

The real cost of free financial advice is not immediately apparent but can be substantial over time. From misleading social media posts to biased product sellers and well-intentioned but uninformed friends and family, there are many potential pitfalls.

Instead of relying solely on free advice, consider investing in your financial education and seeking guidance from certified financial professionals. While it may come with a fee, the peace of mind and potentially better financial outcomes make it a worthwhile investment. Remember, when it comes to your finances, the true cost of ignorance can far outweigh the price of professional advice.

1 COMMENT

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