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 advisers 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
The Investment Advisers Regulations has brought transparency and accountability from the advisers at forefront. This is a welcome step for both, an adviser and his clients, as it will increase the level of trust which remains absent for so many years. As an investor, before seeking any investment/financial planning advise, you will be able to differentiate easily who is going to work in your interest more.
Are We SEBI Registered?
Yes. Jitendra P.S. Solanki, founder of YourPocketMoney, is from the first few financial planners who became a SEBI Registered Investment Adviser and he received the required registration certification in October 2013. Here are details:
Registration number- INA100000184
You can visit www.sebi.gov.in to know more about Investment Advisers Registration.
What should you expect now?
For you, as a client, hiring a SEBI registered Investment Adviser mean a trust that the advice delivered to you is being monitored by a regulator at all levels of communication and so the adviser will work on your suitability, not his/her. We have gone one step ahead by deciding to stay in the business of only giving advice to our clients and become a truly “Fee Only Registered Investment Adviser”.
You can study the difference of a Fee Only with other practices here :
So have you asked your financial adviser about this registration? Is he/she aware that his business will become illegal if he/she is offering only advise and still not registered? Has he/she applied for it? These are some questions you should be asking now when you meet your adviser next time..