Who is an Adviser?

September 25, 2015, Chennai

Ads after article title

Last weekend I was at a get together and the host introduced me to another guest – Ashok.

Ashok is a senior retired professional and invests regularly in the market through mutual funds. The casual conversation took an interesting turn when my friend’s guest (Ashok) realized that I have a practice in personal finance.
‘I told my adviser this morning - You don’t know and I don’t know why I am buying this fund, nevertheless I am buying it, so don’t try to convince me anymore.’ He commented. I tried correcting him – ‘You are probably talking about the Mutual Fund distributor’. ‘Yaa…adviser, distributor they are all the same.’ Ashok retorted.
Really! I thought to myself! Do we not differentiate between a doctor and chemist? Will we ask a chemist to do a health check and give medicines? Will we ask our chemist to diagnose if the cough is due to common cold or TB? And then take medicines suggested and sold by him? Probably not!! How come we do that for money; the second most important thing in life after love.
But unfortunately ‘Advising’ and ‘Selling’ has been used as synonyms in Personal Finance. Agents and distributors (individuals and institutions) who are major sales channel for all financial products (insurance policies, company deposits, mutual funds etc.) also double as ‘Advisers’. There was no reliable way for investors to distinguish between an adviser and distribution agent until now. Independent financial advisers, investment advisers, wealth advisers, wealth manager, financial planners, insurance adviser are few of the titles that the agents and sales staff carried on their business cards. The final outcome has been a product centric market where investors’ requirements were never the focus. This manifested itself in disenchanted customers who trusted investing only in traditional products like real estate, gold and fixed deposits and disgruntled advisers complaining about customer’s unwillingness to pay for professional advice. 
This was a chicken and egg situation. The advisers didn’t focus on consulting because they earned their bread and butter from the mutual fund and insurance companies. And in the absence of any value addition the investor was not prepared to pay fee for the service.
SEBI’s Investment Adviser Regulations Act, 2013 is poised to bring about a radical change in the industry. The regulation which became mandatory from 21st October, 2013 seeks to clearly differentiate an adviser from a distributor. No person / company can provide advisory services to clients without registering with SEBI under the above act. More so the Registered Investment Adviser cannot earn commissions /brokerages /incentives in any form. In short fees paid by the client should be the only income received by the adviser. To be registered with SEBI, an adviser should have the required qualifications, experience. The adviser has to comply with a fiduciary duty of working towards client’s interest. 
This changes the business paradigm and sets the stage for a client centric market; a marked change from traditional product centric market. A client centric service will ensure fair, transparent and unbiased advice aligned to investors’ goals and risk profile rather to the sales target of adviser. Being advised by SEBI registered adviser will ensure competency, compliance and accountability of advisory service.
Next time someone claims he/she is an adviser, check his/her credentials. Ask about his source of income, and the statutory body that regulates his/her practice. Pay for the services you want and demand client centric services. Make sure your adviser is working for you and his interests are aligned with your interests. More so if your adviser is not SEBI registered, he/she cannot charge you for his services.
How do you find registered advisers in your city? Follow this link http://www.sebi.gov.in/sebiweb/home/detail/26311/new/List-of-Registered-... has published a list on its website page ‘Home / Intermediaries / Recognized Intermediaries’ and keeps updating it.

Last weekend I was at a get together and the host introduced me to another guest – Ashok. Ashok is a senior retired professional and invests regularly in the market through mutual funds. The casual conversation took an interesting turn when my friend’s guest (Ashok) realized that I have a practice in personal finance.

‘I told my adviser this morning - You don’t know and I don’t know why I am buying this fund, nevertheless I am buying it, so don’t try to convince me anymore.’ He commented. I tried correcting him – ‘You are probably talking about the Mutual Fund distributor’. ‘Yaa…adviser, distributor they are all the same.’ Ashok retorted.

Really! I thought to myself! Do we not differentiate between a doctor and chemist? Will we ask a chemist to do a health check and give medicines? Will we ask our chemist to diagnose if the cough is due to common cold or TB? And then take medicines suggested and sold by him? Probably not!! How come we do that for money; the second most important thing in life after love.

But unfortunately ‘Advising’ and ‘Selling’ has been used as synonyms in Personal Finance. Agents and distributors (individuals and institutions) who are major sales channel for all financial products (insurance policies, company deposits, mutual funds etc.) also double as ‘Advisers’. There was no reliable way for investors to distinguish between an adviser and distribution agent until now. Independent financial advisers, investment advisers, wealth advisers, wealth manager, financial planners, insurance adviser are few of the titles that the agents and sales staff carried on their business cards. The final outcome has been a product centric market where investors’ requirements were never the focus. This manifested itself in disenchanted customers who trusted investing only in traditional products like real estate, gold and fixed deposits and disgruntled advisers complaining about customer’s unwillingness to pay for professional advice. 

This was a chicken and egg situation. The advisers didn’t focus on consulting because they earned their bread and butter from the mutual fund and insurance companies. And in the absence of any value addition the investor was not prepared to pay fee for the service.

SEBI’s Investment Adviser Regulations Act, 2013 is poised to bring about a radical change in the industry. The regulation which became mandatory from 21st October, 2013 seeks to clearly differentiate an adviser from a distributor. No person / company can provide advisory services to clients without registering with SEBI under the above act. More so the Registered Investment Adviser cannot earn commissions /brokerages /incentives in any form. In short fees paid by the client should be the only income received by the adviser. To be registered with SEBI, an adviser should have the required qualifications, experience. The adviser has to comply with a fiduciary duty of working towards client’s interest. 

This changes the business paradigm and sets the stage for a client centric market; a marked change from traditional product centric market. A client centric service will ensure fair, transparent and unbiased advice aligned to investors’ goals and risk profile rather to the sales target of adviser. Being advised by SEBI registered adviser will ensure competency, compliance and accountability of advisory service.

Next time someone claims he/she is an adviser, check his/her credentials. Ask about his source of income, and the statutory body that regulates his/her practice. Pay for the services you want and demand client centric services. Make sure your adviser is working for you and his interests are aligned with your interests. More so if your adviser is not SEBI registered, he/she cannot charge you for his services.

How do you find registered advisers in your city? Follow this link http://www.sebi.gov.in/sebiweb/home/detail/26311/new/List-of-Registered-... has published a list on its website page ‘Home / Intermediaries / Recognized Intermediaries’ and keeps updating it.