Who on Earth is a Financial Adviser?!

Published: June 12, 2015 at 9:49 am

Last Updated on

“who is a financial adviser? What do they do?”, are, for me, surprisingly difficult questions to answer.

Perhaps if I did not know anything about advisory regulations, I might have said something naive like,

‘a financial advisor is a money-management doctor’

Unfortunately, since I know a bit about these regulations, I take it upon myself to irritate  readers from time to time with it. Like right now for instance!

Knowledge can have several effects on you. Nausea is one of them.

That is how I feel when I see the utter disregard for the regulator by members of the financial services.

Suppose you gather different sections of said community and ask financial advisors  to identify themselves by a  show of hands  and then ask each of them, ‘what they do for a living’, you are likely to get answers like

  • insurance selling
  • stock brokering (or sub brokering)
  • realty brokering
  • commodity brokering
  • currency brokering
  • mutual fund distribution
  • bonds, corporate investment sercvice
  • CA + all, or some of the above
  • financial planning + all, or some of the above (fee-based planner)
  • financial planning (fee-only planner)

Everybody answers to financial adviser! They may also do other businesses to survive.

The community is in such a cluttered and tangled mess because,  SEBI has clearly laid out regulations that

1) People who offer investment advice will have to registered as investment advisers.

2) Distributors cannot offer investment advice. They can only offer ‘incidental advice’. Goal-based investing and risk profiling is not incidental advice. They better not be!!

3) People who are involved in multiple activities (such in mutual fund distributor and insurance agent) must get registered as investment advisers. They would also be known as registered investment advisers.

Well, that is how it reads on paper. As mentioned several times before,  these stipulations have been largely ignored based on the confidence that SEBI will not act unless someone complains.  Like most situations, it boils down to simple economics: commission based selling is too deep rooted and is by the most reliable breadwinner.

Like most situations, it boils down to simple economics: commission based selling is too deep-rooted and is by far the most reliable breadwinner.

The point I wish to make in this post is that even if everyone who ought to register, did register, the question,

‘Who is an investment adviser?’, would remain.

The reason for that is, SEBI (although it is trying) has not managed to differentiate (even on paper, let us worry about reality later) between an

investment adviser – a person who recommends specific products based on the requirements of a client, for a fee (only from the client)

and an

investment enabler – a person who helps a client conveniently purchase products (recommended by the investment adviser) for a commission from the product manufacturer.

To use industry motivational parlance,

the investment adviser is the doctor and the investment enabler is the pharmacist.

Or to put it simply, the doctor cannot run a pharmacy and the pharmacist cannot prescribe.

Well, not a great analogy since doctors are enticed by product  manufacturers on a daily basis, but let us not get too picky.

The point is pharmacists cannot be ‘dispensed’ with! They are crucial for the existence of product manufacturers and they do provide a useful service.

See I am not at all anti-distributor! Just that I advocate the option of buyings drugs wholesale combined with either DIY or professional advice

Hey, I wrote a whole post without saying ‘conflict of interest’!

It can be argued that, with the exception of a few nauseous idiots like me, most investors do worry about such issues and therefore nothing need be done.

I disagree. Trust is the biggest stumbling block for the industry today.

Unless this difference between advice and enabling is enforced, investors will have trust issues while seeking professional help.

Yes, there are many who love a free lunch, but there are also a good many investors who are willing to pay for professional advice. They are not taking the plunge because choosing a ‘financial adviser’ (even if they are unaware of the above-mentioned mess) is harder than choosing a mutual fund (if not a stock).

They may not be asking the titular question. They are certainly asking, “Who on Earth should I trust?”. Trust me on this!


Register for Chennai investor Workshop – June 14th 2015


Register for Hyderabad Investor Workshop – June28th, 2015

Do share if you found this useful
Share your thoughts on this topic at the  Reddit freefincal_user_forum

Reach your financial goals like a pro! Join our 1600+ Facebook Group on Portfolio Management! You can now reduce fear, doubt and uncertainty while investing for your financial goals! Sign up for our lectures on goal-based portfolio management and join our exclusive Facebook Community. The 1st lecture is free!
Want to check if the market is overvalued or undervalued? Use our market valuation tool (will work with any index!) or you buy the new Tactical Buy/Sell timing tool!
About the Author Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association. For speaking engagements write to pattu [at] freefincal [dot] com
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. We operate in a non-profit manner. All revenue is used only for expenses and for the future growth of the site. Follow us on Google News Freefincal serves more than one million readers a year (2.5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any kind of paid articles, promotions or PR, satire or opinions without data. All opinions presented will only 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
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions, seek the right answers and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now. It is also available in Kindle format.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at low cost! Get it or gift it to a young earner

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, 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 199 (instant download)
Free android apps