SEBI (Securities and Exchange Board of India) has made a few significant decisions and announced them on 17th February 2020. There were many decisions, but the most significant ones for retail investors were related to the advisory business.
The most prominent problem investors face in India is the lack of professional as well as unbiased investment advice accessible.
Most of the investment exposure (non-physical) for investors through banks or mutual fund distributors or online apps is in the form of mutual fund and insurance savings plans.
Most of the intermediaries are sales focused and more than often have a significant bias in the investment recommendations they provide.
Note: A simple guide for efficient tax planning to save thousands for your future investment plans.
No Service is free (If anyone says its free, then it is FALSE)
Every service has a cost, and even investment advice or investment adviser carries a cost to the investor. Every mutual fund distributor, Bank Relationship Manager, Insurance Agent, receives significant commissions for the money we invest through them.
What does an adviser need to have?
An Investment adviser / Financial adviser / Wealth adviser should have a level of expertise and experience to provide prudent investment advice. Financial Adviser is necessary because of the complexity of our financial markets and the sensitivity of our savings and our financial goals.
SEBI now has made it mandatory for anyone to be registered with them to call themselves “Investment Adviser” or “Financial Adviser” or “Wealth Adviser”
Loyalty always leans towards the source
Like any profession or business, investment advice provided to investors will be biased towards the source of income for the adviser. If the source comes from the Investment company (which is cut from the investor’s pocket in the backend), the distributor’s loyalty will lean against the investor’s best interests.
As mentioned above, every form of investing has a cost, which in turn has a significant impact on investment returns.
The SEBI Segregation
SEBI has passed a regulation in its recent board meeting that advisory and distributions should not be done by the same individual. Companies in this business should clearly differentiate their advisory and distribution business without any double collection of fees. More details over here.
How does an investor benefit from all of this?
Unbiased advice and loyal advisers are priceless assets every investor should have, and as no service is free, investors should develop a habit of paying fees out of pocket to their investment advisers (which is lesser than buying commission products).
Investors should check the adviser’s SEBI registration (usually starts with INA, ours is INA200012683) and review their experience and expertise.
Trust your adviser and ask them any queries regarding their recommendations and the decisions they suggest.