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Is Your Investment Advisor A Fiduciary, Or A Distributor?

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By Author: People always look up for professional advice whe
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In day to day activities, as we encounter any challenges or confusion, we consult an expert related to that field. For medical concerns, we consult doctors for physical fitness, we trust personal trainers but when it comes to investing our financial resources, people usually take up advice from friends or family rather than investment advisors in India. People generally don’t believe in investment advisors, they pretend that an advisor would take up a huge commission without any useful advice. You cannot judge a tree from one rotten fruit, similarly, you cannot make assumptions about every advisor on account of someone’s bad experience with one.

First, you should understand the types of investment advisors out there:

Mutual funds distributor: Whether its an asset management company, a bank, a financial institution all of them have their selling agents or relationship managers which claims to be giving you advice on which product you should invest but in reality, they are just completing their mutual funds sales target for the asset management company obtaining an ...
... indirect fee from the company.

Registered Investment Advisors: A registered investment advisor provides investment advice on equities, AIFs, etc., and charges direct fees from the client without any commission. They are not related to any company so they provide unbiased advice. In India, the Securities & Exchange Board of India ( SEBI ) regulates these registered investment advisors which impose fiduciary responsibilities on these advisors making them accountable to their clients.

In the case of a mutual funds distributor, investors unaware of the indirect fee structure thought of it as a free service and keeps paying for it for a long time. Investors in India generally don’t have any clue about the SEBI registered investment advisors. Their investment advisory services differ from the commission greedy mutual funds selling agents in various factors:

1. Financial Homework: A SEBI RIA will collect complete information on the requirements of their customer, evaluate their financial situation, analyze options & scenarios, develop solutions to fit their needs, and provide advice that is completely in line with their particular requirements.

2. Unbiasedness: A SEBI RIA charges a direct fee to the client, so they give unbiased, conflict-free, and independent advice whereas an agent will look upon the principles which would benefit him and his company, not the client.

3. Qualification: To become a SEBI registered investment advisor one must have some qualifications suitable for the job, which are definitely higher than that of an agent.

4. Fiduciary Standard: A SEBI registered investment advisor follows the fiduciary standard i.e., they have to put the client’s interest above everything else, including their own. It is the duty of a fiduciary to preserve the trust and good faith of the client. Being a fiduciary thus requires being bound both legally and ethically accountable to the client.

When it comes to the fees of an investment advisor, investors waste away their money on the services which they are manipulated under the misconception that these services are free for them, that is why giving fees to a registered investment advisor seems a burden to them. It is better to give money for a piece of unbiased and reliable advice than wasting out money for a long time in someone else’s interest.

Overview:

People always look up for professional advice when it comes to various aspects of life like medical, housing, fitness, education, etc. But when it comes to finances investors usually adopt a do-it-yourself approach rather than taking advice from a financial advisor. Though there are fewer financial advisors and more of the mutual funds selling agents in India who take up huge commissions and provide wasteful advice in return. In such a confusing scenario you can trust the Securities & Exchange Board of India registered investment advisors (SEBI RIA). These fiduciary bounded advisors provide unbiased advice in exchange of direct fees from the client.

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