How to choose Registered Investment Advisor (RIA) In India?
How To Choose Registered Investment Advisor (RIA) In India?
In India, financial services are regulated by securities and exchange board of India (SEBI). The ones who are registered with SEBI can only provide financial advice to the clients as an authorized investment advisor. The investment advisors need to abide by RIA regulations to do the same. Recently, SEBI has urged the citizens and prospective investors not to fall for any financial advisor who is not registered as Sebi Registered Investment Advisor(RIA).
It has been a matter of concern for the SEBI, as earlier anyone could provide investment advises without any formal professional experience. Due to this, many innocent users were duped, and thus SEBI came up with the investment advisor regulations. This was done to ensure that there is no conflict of interest between the investors and the investment advisors.
Earlier, the mutual fund distributor and other distributors who sell financial products like shares, mutual funds, bonds, used to provide advisory services. This was mainly to sell their products which are a conflict of interest. Now, as per investment adviser regulations of SEBI RIAs, these distributors cannot provide anything more than “incidental advice” about the product they are selling. So, if you are looking for a SEBI registered investment advisor, here are the steps you need to follow.
How to choose a SEBI registered investment advisor?
If you are looking to hire a registered investment advisor under SEBI rules, then you need to follow these particular steps mentioned below –
• Individual Investment Advisors:
The first thing to keep in mind that everyone who works as a distributor or an investment advisor, works for money. As observed after SEBI implemented the registered investment advisor regulations, under which the distributors can no longer offer financial advice, they tied up with major investment advisory body corporates and organizations so that they promote their products to the clients seeking investment advice from them. This is why it is important to hire only those who are individual investment advisors registered under SEBI.
You may want to check if they are into stockbroking or have mutual fund distributorship.
• List of SEBI Registered Investment Advisors:
You can get the complete list of SEBI registered investment advisors from the website of SEBI. These investment advisors have registered investment advisor certification by clearing the SEBI registered investment advisor exam. From this list, you have to shortlist a few based on your requirement and the place where you live. Check their profile on the internet and try to get to figure out which one is genuine. Though it is not possible to find out about their interest just by looking at their profiles or websites. However, you can get an idea.
• Check Conflict of Interest:
This is the most important thing while choosing investment advisers. You can go through their track record and find out their reviews. From these reviews, you can get an idea of whether they had a conflict of interest with their clients or not. It is also important to see whether they are associated with any distributor or broker or not.
Once you have shortlisted a few one of the basis of the information you got online, now is the real challenge you have. You have to interview them and understand which investment advisor fits your requirement the best. For this, you need to set your financial goals and talk to them for advice in alignment with these goals. In the beginning, you may want to share that you are seeking only advice and you may not invest through them. If you feel that there is no conflict of interest you should discuss their track record and their major successes and failures. You may also want to discuss the clients they have handled in the past, the profiles of clients handled and if they have handled clients like you or not with the same financial goals and risk appetite, etc. Finally, you have to gauge whether the advisor is abiding by the registered investment advisor compliance or not.
Finally, you have to ask them about the fees. It is advisable that you must choose an investment advisor who charges a flat fee only. It is because when an advisor charges a flat fee, then it can be assumed that there is no conflict of interest. The advisor charges for what advice he provides and not earning from selling any particular product to you.
Under the new model of SEBI RIA, if you need the advice to invest in mutual funds, then you need to pay a fee for the advice to the intermediary. For investing in regular plans, if you need the advice then as per the model, the fee will be added to the expense ratio of the scheme you choose.
Pros and cons of hiring a SEBI Registered Investment Adviser
When there are various benefits of hiring SEBI RIAs, there are certain drawbacks as well. We have tried to evaluate the important benefits of hiring a SEBI registered investment advisor along with the drawbacks.
• They provide fiduciary care to the clients as they always put the client’s interest before anything and everything. They do not ever put their interest before the interest of the client, and thus you can expect genuine advice from them. They will listen to your financial requirements and the goals to increase your net worth you have set, accordingly, advise you to invest and will also plan your investment strategy.
• Professionalism and qualification: They obtain registered investment advisor license by clearing the SEBI registered investment advisor exam. This ensures that they are qualified and understand the service they are providing. Most of them are highly qualified with MBAs, and CFAs in their kitty. They have strong work ethics, and they maintain a high level of professionalism.
• The financial planning process, their compliance, maintenance of records and even the advice are recorded to check whether they are at par with the standards set by SEBI or not. Every year SEBI audits the investor advisor’s whole year’s work as well.
• They receive remuneration only from clients and thus client-centric without any conflict of interest.
• You cannot expect them to advise a particular broker or funds
• If you want recommendations for investing in SIP, they are not the right person to go to.
• They do not provide a quick suggestion on your portfolio; they need time to analyze the same.
• They do not provide any suggestion on insurance or similar financial products.
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