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It's all about money

When it comes to the cost of providing a service, financial services are different from everything else you buy

It's all about money

Ever wonder why (good) financial advisors are so obsessed with the cost of services that they are providing? The reason is that financial services are different. They are all about money. Let me explain. Let's say you are trying to choose a mid-size car to buy. You have a wide variety of choices. You could buy one from Tata Motors for ₹7 lakh, or Maruti for ₹9 lakh, or from Honda from ₹13 lakh, or from Mercedes at ₹35 lakh. Is everyone except Tata overcharging? Not really. The deal is transparent and clear. You're giving each company a certain amount of money and in exchange you're getting some combination of performance, reliability, safety, gadgetry, prestige and whatever else you look for in a car. You give money, and you get back these other things in exchange. And if a car company wants to make more money, then it can enhance the attributes you value and charge more.

Financial services, specially investments, are different. In their case, the only thing going around is money. You give money, the provider spends money to create the product, but the product itself is more money, some of which you get back. Some of your money is kept back for expenses, profits, sellers' commissions, etc. Therefore, unlike cars or shoes or phones or hotels or restaurants or anything else, financial services are a zero sum game.

Here's a really important implication of this: for a given type of financial service, and a given competence level with which it is run, literally the only way the provider can make more money is to reduce what the customer is getting out of it. If the provider wants more of anything from profits to salaries to a fancier office to better laptops, it comes from reducing what you get. If it wants to increase sales by paying more commissions to agents then that too is paid for by reducing your returns. EVERYTHING comes out of your pocket.