Hiring a Financial Advisor / 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 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”
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.
3. 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.
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.
