Only Sebi-RIAs Can Offer Financial Advisory Services: Here’s What You Should Know

Only those investment advisors officially registered with Sebi are allowed to give financial advice. So, before getting advice, ensure their genuineness.
Only Sebi-RIAs Can Offer Financial Advisory Services: Here’s What You Should Know
Only Sebi-RIAs Can Offer Financial Advisory Services: Here’s What You Should Know

You do not seek help from random people when you are ill. Also, nobody can set up a clinic and treat people without qualifications. In a recent order, the Securities and Exchange Board of India (Sebi) has said that only those registered with Sebi as an investment advisor are legally permitted to provide financial advisory and planning services.

Renu Maheswari, the chief executive officer and principal advisor of Finzscholarz Wealth Manager and a Sebi-registered investment advisor has compared the context with a story from Mahabharata. "I was recently reminded of this story from Mahabharata! Arjun and Karna were equal in competence, but Arjun won the battle. Krishna was Arjun's charioteer, and Shalya was Karna's charioteer. While Krishna gave the legendary 'Gita' to Arjun on the battlefield, Shalya kept demoralising Karna," she says.

"Shalya was related to Pandavas. However, he was tricked by Duryodhana to fight for Kauravas. This was a great disappointment to Shalya, and he went to Krishna for a solution. Shalya was advised, 'Your body will fight for Kauravas while your mind will fight for Pandavas.' In your battlefield of investment, how to ascertain that you get Krishna and not Shalya?" she adds.

Attributes Of A True Blue Advisor

Let us now look at some of the key attributes of a financial advisor.

She says that a trustworthy financial advisor possesses specific attributes. They are fiduciaries, prioritising your interests and earning solely from you. Their approach is client-centric, focusing on your needs. They are educated and have profound insights into personal finance and the economy. Experience equips them to address your practical issues and guide your financial journey. Their expertise entails staying informed about evolving financial concepts.

Requirements To Be A Sebi-Registered Investment Advisor

For a Sebi registered investment advisor, specific qualifications are mandatory. They must hold a postgraduate finance degree, possess at least five years of relevant work experience, and maintain a valid NISM XA and XB certificate, with an exam renewal every three years. Additionally, adherence to Sebi's investor protection regulations is obligatory.

"Only a professional registered with Sebi as an investment adviser can use the title financial adviser/investment advisor," says Maheswari.

Chenthil Iyer, founder and chief strategist of Horus Financial Consultants, a financial planning education firm, says: "Only those registered with Sebi as an investment advisor are legally permitted to provide financial advisory and planning services. Therefore, one may seek information regarding such registration before engaging with an advisor to ensure that one obtains advice from a genuine practitioner."

"An unbiased advisor must be compensated directly by the client in the form of a fee which is clearly outlined in an agreement as per Sebi regulations on Investment Advisor," he adds.

What To Look For Before Selecting A Financial Advisor

Maheshwari lays down the due diligence you need to do before selecting a financial advisor.

License Verification: Request and double-check the advisor's license through the Sebi and BSEASL websites.

Income Source Clarification: If the advisor earns commissions from your investments, they can't charge additional fees for any service, whether planning, reviews, or other offerings.

Fee Structure Understanding: If the advisor's earnings aren't commission-based, their income will come solely from fees. Sebi imposes a 2.5 per cent annual cap on 'Assets under Advisory'. Ensure charges remain within this limit. The fee amount (within the 2.5 per cent limit) is influenced by the advisor's expertise and the services they provide.

A. Assessing Abilities:

i. Evaluate the advisor's educational background and experience, not just the company's reputation.

ii. Gauge the depth of the advisor's engagement with your life during conversations.

B. Services Provided:

An advisor offers various services, including financial planning and investment management.

Process Assurance: Inquire about the advisor's ability to fulfil their commitments. Ask questions about their practices and office management. If possible, visit their office in person. Registered Investment Advisors (RIAs) must avoid promising returns by law. Instead, they should focus on aligning investments with your life goals and risk tolerance for optimal returns.

Shared Money Beliefs: Ensure your financial philosophy aligns with the advisors. Remember, personal finance starts with the personal aspect before delving into the financial strategies.

In essence, managing personal finance is a collaborative effort between you and your advisor, where the synergy brings greater value than the sum of its parts. Choose the right advisor to embark on a journey of tranquil prosperity.

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