Are you planning to invest in equities, but find you aren’t sure of the process? You find you have plenty of advisors offering advice, but you wonder if their tips and tricks will work and help you fulfill your goals.
So, getting advice from a professional investment advisor, especially a SEBI registered investment advisor is the right way to go. But before we get to the benefits of doing so let us understand a little more about investment advice and SEBI registered advisors.
What is Investment advice, and who needs it?
“Investment advice” is any advice related to investing in, purchasing, selling, or otherwise dealing in securities or investment products. It could be written, oral, or any other means of communication for the client’s benefit, and it includes financial planning.” It’s a common misconception that only very high net worth individuals need financial advice. While they certainly do need it, everyone benefits from financial advice and having a financial plan or roadmap laid out so they may achieve their life goals without any major hiccups.
Who is a SEBI registered investment advisor, and what qualifications do they need?
An Investment Advisor is a person/s engaged in providing investment advice to clients in exchange for a fee. The advisor may be a sole proprietor or a corporate body. Some professions or persons are exempted from becoming registered financial advisors under regulation 4 of IA Regulations subject to certain stipulated conditions being fulfilled.
Example: insurance agents, stock brokers, sub-brokers, fund managers, advocates, solicitors and law firms, pension advisers, mutual fund distributors, portfolio managers, etc.
Under the IA Regulations 7(1) and 7(2) an investment advisor must obtain NISM-Series-X-A: Investment Advisor (Level 1) and NISM-Series-X-B: Investment Advisor (Level 2) certification.
What are the obligations of a SEBI registered investment advisor?
The investment advisor has certain obligations laid down by SEBI and compliance with these is mandatory. These compliances state that a registered investment advisor will:
1. Act in a fiduciary capacity toward its clients and will disclose all conflicts of interest as and when they arise.
2. Act in a fiduciary capacity toward its clients and will disclose all conflicts of interest as and when they arise.
3. Act honestly, fairly, and in the best interests of his clients.
4. Will maintain an arms-length relationship between his activities as an investment advisor and other activities.
5. Act with due skill, care, and diligence in the best interests of the clients and give advice that suits the clients’ requirements and risk-taking ability, etc.
6. Comply with general obligations and responsibilities such as general responsibility, disclosures to clients, maintenance of records, etc. These have been specified under chapter III of IA Regulations. There is also a well-defined code of conduct defined by the IA regulations.
If you compare these obligations to the non-registered investment advisors who are most often agents of other investment vehicles – their advice can be biased depending on the commission they may receive on the sale of the units. As a comparison to the above – an unregistered advisor:
1. Is under no obligation to disclose their commissions
2. They may prioritize the products they sell personally and have high commissions on
3. May be better informed only about the products they deal in
4. Does not need to have any qualifications to become an investment advisor
5. Is not answerable to any entity regarding the care or diligence taken in advising the client or their record keeping.
These are the reasons that a SEBI registered Investment advisor who gives fee-only advice is every investor’s best friend.
What is the concept of Fee-Only Advice?
SEBI registered investment advisors offer fee-only advice. These registered investment advisors cannot have a conflict of interest by selling or having a commission on the investment products that they are advising their clients to invest in.
Therefore the source of income they are allowed to have is the fee from the person getting the advice – in exchange for services provided. There is no conflict of interest and the advice provided is the best tailor-made advice keeping the clients’ needs in mind.
The 7 Benefits of a SEBI registered financial advisor
1. Fiduciary responsibility and Care: The moral and financial responsibility to put the financial well-being of the client above all other motivations even one’s own is the fiduciary care given by a registered investment advisor.
2. Client-Centric point of view: Since the payment made is only by the client and not any other agency – the advisor’s guidance is purely centered on the client’s point of view, which is a huge plus for the client.
3. Unbiased guidance: Ordinary investors are often biased and have incomplete knowledge of competing products available for investment. This lack of knowledge of non-affiliated products would adversely affect the clients’ investment options.
4. Better qualifications: SEBI has some basic qualification requirements before giving the title of a registered investment advisor. In case a corporate is an investment advisor – they must ensure that their partners and representatives have the requisite certifications too.
5. Regulations and Redressal forum: SEBI has laid down several regulatory requirements to obtain and maintain the SEBI registered investment advisor certification. In case of problems, SEBI has launched a new web-based centralized grievance redress system called SEBI Complaint Redress System (SCORES). Investors can lodge their complaints at http://scores.gov.in. In case of complaints, SEBI initiates redressal from the concerned financial advisor.
6. Accountability / Audit: The registered investment advisor must keep proper books showing the process, compliances, and suitability of advice. The advisor or advisory is audited every year in these matters.
7. Online consultations: Online consultations provide the benefit of choosing the best investment advisor regardless of limitations of location etc. Online Investment advisors are generally affordable and the consultations take up less time. It may be a great option for people with straightforward or low-value investment decisions to be made.
Many reputed and registered investment advisors provide advice on an online model. You could check the credentials and registration on the SEBI website to confirm the authenticity of the advisor. It gives you the ability to put faith in an online investment advisor for advice related to some crucial financial decisions that you may be making.
Earlier you were accustomed to taking financial advice from agents who also guided your financial decisions. While not all agents are biased – there is a lot to be said about the client-centric point of view one gets when dealing with a fee-only advisor.
In short, a SEBI registered investment advisor offers you plenty of benefits, and taking advice from them makes perfect sense.