How to select a Good Financial Advisor for your financial planning?
Regulations are changing quite fast. In the last few years, SEBI has come out with very strict regulations on Products, product manufacturers and distributors. All these are for the benefit of consumers, reducing the cost and increasing the transparency in products. Entry loads in mutual funds are gone, expense ratio is coming down, and direct plans have been introduced where investor can invest directly without intervention of distributor. SEBI has also tried to differentiate between adviser and product distributor, so that investors should deal with a Regulated entity and his interests can be protected. Why do you need a good financial Advisor? How to select a best financial advisor for you?
Why do you need to have Financial Advisor?
- Before going ahead with the search of financial advisor, you have to be very sure on your part as to what exactly are your requirements, why you need to have financial advisor? Are you looking for a product advice like investing in mutual fund or other saving schemes, or you want someone to look after your complete portfolio and be there at every step to handhold you in your journey towards your goals. Do you want to go for “as and when” investments tour or a structured financial life.
- Your requirements will let you refine your search, between agent/product distributor and advisor. This is the same difference which is between a TRP (Tax Return Preparer) and CA/tax advocate, Chemist and Doctor.
- With the increasing penetration of internet in lives, you may have started feeling that making investments, filing taxes or even buying medicines are small issues and can be done online, so why to take any professional help. You may feel that when everything can come for free or low cost why to have a professional by your side. But this is also true that when things go out of hand, only then you visit the professional advisor and expect him to get you out of the situation.And then professional charges you heavily with no surety of you being cured or not.
- Shouldn’t this happen at the first place so that your finances, investment, taxes , health can be taken care of on regular basis and any issues can be tackled and fixed upon at its early stage. Costs are coming down as Regulator wants to give control in the hands of consumers, So that they can select what is good for them and pay to those who deserve.
- I can imagine your dilemma too. You must be thinking that with so many agents/relationship manager/ and so called advisors, prevalent in the market, how would you be able to select a good adviser? Every second person in this industry, be it mutual fund distributor, or Insurance agent call himself a financial advisor, even many uncertified people call themselves a financial planner. Isn’t it confusing?
- Financial advisory profession has gone through a sea change. SEBI understood the confusion in this segment and thus came up with SEBI (Investment adviser) Regulations in 2013, whereby it has mandated that all the persons, companies, which are in the profession of Investment advisory, should register themselves under this regulation. It has further stipulated that only those who are registered under these Regulations can call themselves – Investment Adviser.
- Under this regulation, SEBI has mandated strict standards like of education and experience, to qualify as Investment adviser. Then SEBI has specified Investment advisers to disclose and eliminate the conflict of interest from their profession. It says that one has to keep advice and implementation separate, as it creates conflict of Interest. So,advisers will advise purely on the basis of client’s needs, financial and risk profile, and not with the intention of selling high commission products.
- SEBI has mandated few disclosures to be given by advisers and also to get his records audited by a Chartered accountant every year.
- But unfortunately most of the so called advisers could not qualify the conditions, and many of those who are competent enough to get registered as adviser, chose not to Register looking at the strictness of regulation and also due to their work style. Some even did not want to lose the commissions.
- SEBI has made it quite easy for the investors to select a competent and qualified advisor. But whether the advisor is good for you or not, that totally depends on your trust level on him and how well he handles your requirement and needs.
- Only handful of persons and corporates in India (almost 350) at present is registered with SEBI as Investment adviser. You can get the list of advisers from here.
How to select a good financial advisor?
Go for SEBI Registered Investment Adviser
- So first thing first, if you are looking for an Adviser then you should go with only SEBI registered Investment adviser.
- Selecting any SEBI registered adviser, does not make it sure that he/she will be good for you. This is just a first step of filtering. In Registered advisers fraternity too, you will get many Stock brokers, financial planners. It would not be right to state that only SEBI registered Investment advisers are honest, transparent and competent and others are not. But those who are registered are following the regulations to the core and know that Regulator is watching their activities, thus make it a safe play for clients.
- Almost all of the SEBI registered Investment advisers charge fee for their services. So you have to be very sure what kind of services you are looking for. If you have clarity on what you should invest in then you may go to any product distributor, banks or brokerage houses. But if you want a guidance on Whys, Whats, Hows, What ifs etc. then only competent adviser/planner can guide you on this. Regulations have come to your advantage as you can be sure that Regulator is keeping watch on this person and if anything goes wrong, you can always complain.
Check investment advisers experience in the field
- Besides Registration you may check out the Advisers experience in this field and ask him his client stories. Good financial adviser will never speak about high returns, he will never pitch you any product without understanding your cash flow position, risk profile and goals. Good financial adviser would let you speak your mind and will never push you on products. He values process more than products. Good financial advisor knows that it is investors’ behavior which needs to be tamed, and then investments will grow in the process. Good Financial advisor never keeps on coming with new products all the time. He knows the importance of technology and uses it effectively in his consultancy for client’s benefits. He is not always a “yes” Man, He knows what is wrong is wrong.
- SEBI has exempted Mutual fund agents, Chartered accountants from this registration, provided whatever advice they give should be incidental to their basic consultancy model and they should not use the term “Investment adviser” with their name. All those who impart advice on public platforms like on Blog or in media, Free of cost, are also exempted from regulations.
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This is guest post from Mr.Manikaran Singhal, SEBI Registered Investment adviser and founder of Good Moneying Financial solutions. This is as part of our new initiative to provide solid investment plans from top bloggers in India