Hiring a financial planner is an important decision of your life. This decision is made on the foundation of trust where you are prepared to share your finances with an objective that you will be given the right guidance to build a secure financial future.  But this was more difficult than written considering the lack of accountability among advisors and misselling prevalent in the industry.

Change happens for good and so it did in financial services industry. SEBI rolled out Investment Adviser Regulations 2013 to govern all investment advisors in the country. The objective of these regulations is to differentiate between advisors interested in giving advice suitable to their clients FROM advisers working for product manufacturers. Any finance professional (financial planner, advisor, financial coach, agent or whatever name they use) who is giving investment advice (it too has a very broad definition to include all elements of advice) to their clients has to first register with SEBI as “Investment Adviser”. Once registered, The Investment Advisers then work under a standardized operating structure so that the matters related to risk profiling or performance reporting can be deal with diligently.  For investors like you, this is a welcome step as you can expect a fair and transparent advice which solely takes your interest on priority from a SEBI Registered “Investment Adviser”

Here is what differentiates “Investment Advisers” from advisors who will stay unregulated:

1.  Education & Experience – Firstly to become an Investment Adviser SEBI has laid down stringent guidelines on education and experience of the candidate/entity registering as Investment Adviser. A mandatory certification from NISM or any other organization accredited by NISM or a graduate with a five years’ experience in Financial Advisory/PG in Finance etc.. is the minimum criteria in the regulation.

2. Fiduciary Duty: This is going to be the biggest differentiator. A SEBI registered Investment Adviser have  a fiduciary duty of working towards your interest as he/she can be held liable for any breach of trust or for rendering any incorrect advise. This ensures your interest will always be kept on priority while rendering you investment advisory or financial planning services.

2.  Compliance – Investment Advisers have to strictly adhere to compliance. Record maintenance of entire process of Investment advice for 5 years, annual auditing of books of accounts, open to regulators audit are compliance which they have to meet to stay in the business. What this means is that a registered adviser is regulated at all level of communication with its clients to ensure the suitability of advice is followed.

4. Disclosures: There are host of disclosures which Investment Advisers have to provide to their client before any engagement can be initiated. These pertains to the advisory business, fees and scope of services, conflict of interest if any, remuneration apart from the fees charged, tie-ups with other entities and many others which have a probability of raising any element of conflict of interest. The benefit of these disclosures is that as a client you have full awareness about your adviser and his remuneration before you hire him/her. Thus, in first meeting itself you are able to differentiate an adviser from a product distributor.

5. Global Standard– The Investment Adviser regulations are in line with regulations prevalent in countries like US, UK or any other, in fact more stringent at many instances. Thus, these regulations are of highly global standard.

6. Code of Conduct– There is going to be strict adherence to code of conduct laid down by SEBI.  Read here

 

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