Nowadays, many of us knowingly or unknowingly, allocate a substantial portion (often exceeding 30%) of our total earnings to savings and investments. This commitment to financial security is influenced by various factors, including demographic shifts from joint to nuclear families, a shift from inherited to self-created wealth and enhanced interest in pursuit of personal passions. Amid these changes, the role and significance of investment advisers have multiplied manifold.
The importance of investment advisers becomes evident when we reflect on the way our approach to other aspects of life has evolved. Consider the analogy of constructing a house. A decade or two ago, many Indian households would engage skilled labour and just a contractor to build their homes, implementing their ideas without professional guidance. However, over time as the choices & options have widened, we’ve learned that if the outcome doesn’t align with our expectations, the cost of rectifying mistakes can be exorbitant, leaving us with limited options to correct the missteps. Therefore, today when constructing or renovating, most of us seek the services of professionals such as architects and interior designers to ensure that the job is done correctly.
Similarly, our financial lives require a great deal of care and expertise. The intricacies, limited resources (both time and money) and our behavioural biases make the guidance of investment advisers increasingly valuable.
In India, many individuals may identify themselves as investment advisers, but a major change occurred with the key amendment of SEBI’s Investment Adviser regulations in 2020. As a result, anyone, be it an individual or an entity, desiring to operate as an Investment Adviser must register with the regulatory authority (SEBI). This registration involves stringent criteria encompassing the Experience, Net Worth, Qualifications and Certifications. This framework of Investment Advisory Regulation 2013 stands as one of the toughest regulations introduced by SEBI.
Its primary aim is to protect investors and bring to the marketplace the entities who are not only well-qualified but also represent the interests of investors and demonstrate fiduciary responsibilities in handling individual financial lives. To navigate this unique financial landscape effectively, investors should consider the following key dimensions when selecting an investment adviser:
- Registered With SEBI: Ensure that the advisor is registered with SEBI as a Registered Investment Adviser (RIA) and have share his license details. This confirms their compliance with the regulatory authority. The regulation largely takes care of the conflict of interest and helps to implement fiduciary responsibilities.
- Experience of the Entity or Key Person: It’s essential to recognize that markets, economies and the financial journey of an investor, all follow a cyclical pattern. Investment advisers with diverse experience spanning these cycles bring significant value to investors. Financial markets often expose investors to fear during downturns and greed during upswings. A seasoned financial adviser, well-versed in navigating through both prosperous and challenging market phases, can offer invaluable guidance. Through appropriate asset allocation and strategic rebalancing, they assist you in managing this volatility in a manner aligned with your financial objectives. Pay attention to the nitty gritty of processes the financial adviser has in place for different market conditions. Also understand his knowledge level of financial markets, investment products, strategies or insights and information that individual investors may not readily access independently.
- Asset Class and Product Offering: Each investor’s financial situation and needs are inherently unique, which underscores the need for tailored solutions. Relying solely on a single product or asset class may prove inadequate in meeting the diverse requirements of investors. To construct a resilient portfolio that aligns with your financial objectives, investment horizon and tax considerations, a combination of various financial products may be essential. These encompass mutual funds, PMS, AIF, fixed deposits, bonds, equities, precious metals like gold and international investments among others. An Investment Adviser should offer comprehensive advice spanning multiple products, avoiding an exclusive focus on a single offering. Their expertise should extend to multi-asset, multi-product, and diversified solutions that cater to the individualized needs of each investor.
- Compensation and Remuneration: In this world nothing is free but yes there must be a right value proposition. Many a times we hear lot of stuff are free, but we must understand no business can run sustainably by providing free service. Therefore, there must be a monetisation programme and understanding this dimension is important.
To access required advisory services, the fee must remain reasonable. While exorbitant fees can burden the investors, low fees might compromise the service quality over time. To address this concern, regulatory authority has established a framework that aligns investment advisers’ fee structures with below guidelines.
| Sr No | Mode of Charging Fees | Limit Under IA Regulation |
| 1 | Asset Under Advice (AUA) | Not Exceeding 2.5 % of AUA |
| 2 | Fixed Fees | Not Exceeding INR 1,25,000.00 per annum per client |
To avoid conflict of interest as well as ensure that the adviser’s recommendations remain in the best interest of the investor, the adviser’s fee must originate from the investor only and not from any financial products.
- The processes make all the difference, so figuring out the process is key: A successful financial advisory services hinges on well-defined process that serves as the backbone ensuring structure, consistency and efficient task execution with a resolute sense of purpose through profiling investor based on their goal, risk, behaviour, biases and mindset.
- Adoption of Technology & Evolvement: Every Sector and business evolves with time. From an investment adviser’s perspective, embracing technology and constantly evolving processes is essential for remaining relevant to investors. At the same time, while being open minded to new ideas, ensure not to change the age-old basic investment tenants like conservatism and capital protection.
- Behavioural Coaching & Handholding: In the world of investment and personal financial landscape, behaviour plays a crucial role for desired outcomes. An advisor provides process based objective advice helping you overcome emotional biases and make rational decisions during market fluctuations thereby handholding you till the goal is reached.
- Team & Infrastructure: Achieving favourable outcomes necessitates the presence of suitable infrastructure and a capable team. The same also applies to investment advisory practice, hence, it is required to understand different physical as well as digital Infrastructures to ensure effective servicing.
- Review and reporting: An investment adviser plays a pivotal role in keeping you on course to realize your financial objectives, whether they pertain to retirement, your children’s education, or other significant life milestones. Customizing investment portfolios that are tailored to these objectives, coupled with the ongoing process of vigilant monitoring and adjustments, when necessary, substantially bolsters your progress toward achieving these goals. It is of utmost importance that the investment adviser maintains a keen awareness and keeps you updated of the latest developments in financial planning, market dynamics and personal financial circumstances as they are constantly changing.
If an investment adviser meets the criteria outlined above, it’s reasonable to conclude that you’re in the capable hands of a proficient adviser.
MintBox Advisory LLP is a SEBI Registered Investment Adviser (RIA) & AMFI Registered Mutual Fund Distributor (MFD).
Disclaimer:
PLEASE NOTE, THE ABOVE PRESENTATION IS FOR INFORMATION PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS INVESTMENT, TAXATION AND/OR LEGAL ADVICE. OPINION EXPRESSED OVER HERE IS PUERLY PERSONAL.
