Financial Advisors in India come in many faces. Yes, in good times every second person may advise you on financial investments, but in bad times you stay away from such advice.
It’s a Serious profession and you should never consult your neighbors, Peers, or any other person not from a specific background with special qualifications and experience who ask about you had earned money.
Your banking relationship manager may look smart but he may not be qualified and experienced enough to advise you on your financial matters. Your insurance or Mutual fund agent may have advised you on some high return generating product in the past but he/she may not be registered with Regulator to provide formal investment advice.
So, it becomes imperative for you to understand who is the Real Financial Advisor in India and whom to consult for what purpose.
Who are Financial Advisors?
As the very name suggests, financial advisors are the professionals who guide you on various financial decisions, like making new investments, taking/repaying loans, buying insurance, doing financial planning, and many more things related to Personal finance.
And since all this requires a professional approach, SEBI the financial regulator in India, regulates this profession under “SEBI Registered Investment advisors’ regulation 2013”. It has laid out clearly defined conditions on qualification, experience, process, compliance, and many other areas that a financial / Investment advisor has to follow to register and work as a financial advisor.
This is why you will not find many people advising you as RIA, as they like to sell and advise you but do not like to be responsible for the same, and fall under regulations.
These Registered Advisors are supposed to have a Post Graduate degree with a Processional certification from an Industry body like Certified Financial Planner (CFP) or Chartered Wealth Manager (CWM), or the like as accredited by NISM, to practice as a financial advisor.
CFP is an Internationally recognized certification issued by Financial Planning Standards Board.
Different Kinds of Financial Advisors in India
Well, the financial advisors’ work is the same, however, the way they receive their compensation creates the difference between them. You may find different types of Financial Advisors in India –
Fee-Only Financial Advisors
When you are registered with SEBI this is the only Model that Advisors are required to follow. To keep the conflict of Interest at bay SEBI has mandated Registered Advisors to work on FEE only Model. Even if they run distribution in their firm they are required to keep both the clients separate so fee-only clients get a conflict of Interest-Free advice.
Fee + Commission Based Financial Advisors
Though this type of financial advisors are not allowed to work in India, but still due to a lack of awareness among the general public many sellers are taking advantage of the same and take fees from the investors in the name of coaching or financial planning and make them invest in a commission oriented products and earn a commission.
This is not legally acceptable and you as an investor can object to it. You are either required to pay a fee or commission. Not Both
Even if the advisor says that the fee was for the financial plan and commission is the implementation and execution work, they are not allowed to earn both in one engagement year. Next year, with your mutual understanding you may move from fee to commission or vice versa.
Agents & Distributors
These are pure sellers and cannot ask for any fees. Their main source of earning is through commission on the products they have sold to you. Before 2013, you were dealing with Agents only. Your bankers, Insurance advisors, Mutual fund sellers, etc. all were agents only and they still are if they have not registered with SEBI and turned themselves into Fee-only Advisors.
Asking fees is difficult as you have to show your worth, so there are very few advisors around.
Attributes of Best Financial Advisor
One thing is very simple, your advisor has to work in your best Interest. He should have to keep your interests above his own. This is where when you deal with commission-oriented agents who get their income from products they sell, there is always a mistrust as to why they are advising you on that specific product and why not another one.
SEBI Regulation has answered this to some extent by mandating the registered advisors to earn only fee and not commissions. If they sell you a commission-oriented product, they cannot charge a fee to you.
So, one thing you may note is that an attribute of the best financial advisor is that he/she acts as a Fiduciary and is Registered with the Regulator.
Now, though regulation takes care of itself, still there are many Registered advisors in India who run a distribution firm along with their advisory practice…with a very valid reason that Investors are not ready to pay a fee. Or Investors like paying commissions indirectly in the form of commissions but when asked fees directly by making them invest in low-cost products, they get reluctant.
This is the understanding that investors also have to showcase, but from the advisor side, they are not allowed to make you invest in commission-based products after charging fees from you. So, if you are advised on commission-based instruments through the financial planning route, beware of such “advisors”
Good Advisors are always transparent with their clients and disclose each and every risk related to their advice. Whereas some agents carrying the fake image of advisors try their best to make clients invest in expensive, high-commission products. Fee-only service is what you should look forward to when searching for the best financial advisor in India.