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Pick a regulated wealth adviser if you're paying for your investments and financial planning
By now you must be aware that your financial adviser may need to register with the Securities and Exchange Board of India (Sebi) under its newly formulated Sebi (Investment Advisers) Regulation 2013.
If your adviser is an individual you can trust and who has been servicing your investment decisions for a few years, then maybe it's not so critical for you to worry about the Sebi regulation, because the trust has already been established. Financial planning and investment advisory after all, are about trust. Now what if you don't really know an individual adviser and still want to get professional, credible and trustworthy advice? You will look towards a financial planning or wealth advisory company. The truth is that the advent of this regulation has actually given the much needed impetus to fee-based advisory service and this can be very beneficial for you. For you the regulation means it's easier to move towards engaging a wealth advisory company, as the fiduciary duty has been spelt out by the capital markets regulator. Hence, trust may be somewhat easier to establish.
If you have many advisers and private bankers already vying for your time and a share of your investment wallet, in all likelihood you fall under a category called high networth individual (HNI). You have good access to the basic advice and even a choice of whom to pick for implementation.
If, on the other hand, you find your annual surpluses increasing and understand the need for structured investment, yet your total corpus is not large enough to qualify in the 'HNI' bracket, you could be left wanting for qualified and professional investment advice. This is different from finding an agent to buy a product like a mutual fund (MF) or an insurance plan. A number of wealth advisory companies are now gearing up to make themselves available as an adviser to you. The much needed thrust has come from the regulatory initiative to segregate advisory from distribution. "he regulator had to do this to give investors the right opportunity, else, distribution in the garb of advisory would continue to be the only option.
Although segments of the industry feel that some investors won't be ready to pay a fee for advice, not all agree with that view. There is a need and willingness to pay for advice, the issue really has been the industry reach. Now you can get ready to see many more fee-based advisory services being offered to the mass affluent segment as well.
Advisory services attract different sets of customers. Some customers understand investments and are involved themselves. Others prefer to delegate this aspect of their finances to a professional.
The seriousness of companies to grow this business is good for you and can be seen in their approach to set up specialized units for it. While ICICI Securities has a separate division for investment advisory.
You can also choose a service based on your needs. ICICI Securities has four distinct services that it offers for a fee and what you pay depends on the depth of the service.
Similarly, a basic "financial health check-up" for those who log on to their website and then you can choose to move to an 'Elite' or 'Elite Plus' service.
Innovation and technology
It is not easy to scale up an advisory business thanks to the branch model that most companies follow and the investment in human capital, This is a high cost business and one will have to consider innovation through technology to expand and make it profitable.
The industry can increase its customer reach successfully through the use of technology. He doesn't think that many entities will be able to offer a fee based service successfully without relying on technology driven innovation. Technology based innovation for you means easier and more widespread access to financial services.
As things evolve you can look forward to some product innovation. The present system caters more to the distribution set up; for example if you have a fee paying adviser and you invest in an MF, unless you transact yourself through the direct plan you may end up paying additional commission for the MF. There is no product in the MF space which caters to the adviser who charges an advisory fee. The advisory community needs access to direct plans and we put forth this request to get feeds from research and transfer (R&T) agents to enable such access but so far Association of Mutual Funds in India (Amfi) hasn't approved. Packaging of MF products based on goals and asset allocation may be another innovation to look forward to. Banks too can innovate by making product baskets specifically for advisers.
According to Sebi, investment advisers were required to apply for registration with Sebi within six months of the Investment Advisers Regulation coming to force. Which means by October 21, 2013 those who wanted to, should have applied. But in some cases implementation of a dedicated and distinct advisory service is still sometime away.
Many feel that the fee-based advisory model itself is not sustainable for certain client segments. Where companies have an established base of clients and are servicing them on a particular platform, moving them to an advisory set up just because the choice is there may not be a viable business move.
Majority of the people are not thrilled to pay fees for advice. Economics of the business are inclined to distribution and advice incidental to that is already available, it doesn't need to be classified as 'advisory'.
Mostly segments of the industry which deal with HNIs, despite having applied to Sebi for registration, are not certain whether they want to drive advisory above distribution and implementation is still uncertain.
Advisory services are appropriate for those investors who understand financial markets and the need for investing, but don't have the time or the access to for doing it themselves. HNIs typically have the infrastructure and a team to help them with this and to look at the details.
At the moment, the distinction between a pure distribution set-up and an advisory set-up is very thin. Having said that, there is a long way to go for the industry to align itself to an advisory model and whether it works or not is also not certain as yet.
Industry woes aside; if you are going to rely on professional wealth advisers and pay them for your investments and financial planning, it is only prudent to pick a company that is registered and regulated. This secures their fiduciary duty to act in your best interest and follow the guidelines laid down by Sebi. Moreover, if you have a complaint against the adviser you can file that with Sebi, which will take action. Not all advisers are opting for this, so, the onus is with the investor to pick a Sebi-registered and certified investment adviser.
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