What I Learned in India About Financial Advice
In the airport shuttle taking us to our hotel in Mumbai, I looked out the window and thought, "We're not in South Dakota anymore." At midnight, the streets of India's largest city seemed as full of people, vendors, and traffic as Times 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 — just 60 miles from my home — is no match whatsoever for the real ghettos of Mumbai, where 55% of the city's 16 million people 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 adviser communities and their clients. Here I was surprised.
I traveled to Mumbai to meet with a group of Indian financial advisers. The country's financial regulators are actively encouraging advisers to change from charging only commissions to charging fees. My role was to offer suggestions for making that transition.
After spending several days observing and listening to the struggles of the Indian advisers, I concluded that 95% of the obstacles they face in promulgating client-centered, fiduciary planning are the same as the ones planners face 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 advisers struggle to help consumers understand the math behind hidden commissions and visible fees. While most advisers 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. 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 advisers and willingness to listen on the part of consumers. Similar to where the US was in the 1980s, India has only a handful of pioneering fee-only planners. Most advisers 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 fewer conflicts of interest — inherent in a fee-only compensation model.
In my career, I have watched and participated in financial planning's growth as a profession in the US. It's a privilege to be able to see it develop in India as well.
Rick Kahler, ChFC, is president of Kahler Financial Group, a fee-only financial planning firm. His work and research regarding the integration of financial planning and psychology has been featured or cited in scores of broadcast media, periodicals and books. He is a co-author of four books on financial planning and therapy. He is a faculty member at Golden Gate University and the former president of the Financial Therapy Association.