Last Updated on October 6, 2017 at 9:47 pm
Financial services in India are regulated by SEBI. Only those registered as investment advisers with SEBI (SEBI RIAs) are authorised to provide financial planning advice. SEBI recently warned the public not to engage with anyone who is not a registered investment adviser. If you are looking for financial advice, here is how a SEBI registered investment advisor can be chosen.
The idea behind the investment adviser regulations is to eliminate conflict of interest. Those who distribute products regulated by SEBI (mutual funds, shares, bonds) can only offer “incidental advice” about the product. They cannot offer investment advice.
Those who offer investment advice cannot earn from product commissions. Unfortunately the stipulation here is weak. SEBI RIAs are suppose to maintain an “arms length” relationship from product distributors. In my opinion, this has been conveniently interpreted. RIAs have chosen to “shift” their distribution business to their spouses, parents, children etc.
The total number of RIAs are extremely small in number. A majority of those in financial services have not bothered to comply with SEBI regulations. I believe the investor community should shun those who have not complied. SEBI say so too.
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
That said, because of the convenient interpretation of the arms length rule, not all SEBI RIAs are the same. Hence this post.
How to choose an SEBI registered investment adviser
Step 0: Choose only those registered as individuals. Others (Body corporate,company, limited liability partnerships and others) most likely would have a tie-up with a distribution partner (a close relative or friend) through a “separately identifiable division” (SID).
Stay away. Choose only those registered as individuals
You can know about their registration status here: List of Registered Investment Advisors
Step 1:
A If you are going to invest in stocks, the SEBI RIA or any of their relatives or associates should not be broker. Get stock advice and invest where convenient, say via your bank.
B If you want to invest in mutual funds, decide whether you want to choose direct plans (and earn about 0.5 to 1% more return for each year of investment) or if you want the “convenience” of regular mutual fund plans.
Get investment advice from the SEBI RIA and “go direct”. Or get investment advice and buy regular plans from your bank or online distribution portal. Do not buy them from anyone suggested by the RIA, their relatives or associates.
So the idea is simple, pay for investment advice alone and invest via an independent third party.
If you are clear about how you are going to manage this step, then choosing a SEBI RIA become so much more simpler.
Step: 2
Recognise that it is not possible for an investor to judge the competence of a investment adviser with just a few interactions. The proof of the pudding is in the eating and the pudding (financial goals) is not yet ready (achieved).
So referrals do not help much, except perhaps find out how the RIA behaves (see below) after the ‘financial plan’ is ready.
So choosing a RIA is pot luck!
Step 3:
Any selection process requires a shortlist. If you require some help, I have a SEBI RIA list of fee-only financial planners in India. This is neither an exhaustive list nor a recommendation, just a starting point.
If you don’t like this, create your own shortlist by following steps 4 and 5. Even if you use the shortlist, steps 4 and 5 are crucial.
Step 4:
When you begin the interaction with SEBI RIA, make it clear to them that you will not invest “via them or via any agency recommended by them”. Look at their facial expressions carefully.
If they don’t bat an eyelid and are perfectly okay with your strategy, you can move forward. If they appear disturbed and make excuses like, “we cannot keep track of your portfolio”, etc, end the conversation then and there.
Read more: Pay for Financial Advice, But Insist on Direct Mutual Fund Plans (even if you want the convenience of regular plans via an independent third party).
Why end the conversation? Because Portfolio management is possible without AMC Feeds!
Step 5:
Now that the SEBI RIA has not issues with you investing via a third party or direct plans, next come the issues of comfort level and fees.
‘Comfort levels’ are subjective and you are the best judge. When it comes to fees, I recommend a fixed fee for plan creation and a fixed fee for review.
Many charge a fee linked to the size of the portfolio. I am not a fan of this. I am also not a fan of the adviser obtaining account statements (a fancy term for AMC feed) of direct plans via third parties.
The idea is quite simple. You pay for financial advice and invest independently (with or without paying trail commission). The investment plan is periodically reviewed by the SEBI RIA periodically.
It is our money. No one cares about it like we do. Let us help SEBI eliminate conflict of interest in the financial services industry and deal only with SEBI registered investment advisers who encourage clients to invest ‘independently’.
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 7000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 2,500 investors and advisors use this!
Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter using the form below.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our YouTube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.Your Ultimate Guide to Travel
This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)