Is your investment adviser registered? Be sure to check


The Securities and Exchange Board of India (Sebi) has announced new guidelines for investment advisers and investors need to take a closer look at these details. These will be beneficial for individuals because they would direct the manner in which investors will need to go about their investment process.

Registered adviser: Going forward, one of the key points that investors have to realise is that they should be taking investment advice from people who are qualified and registered to actually provide the advice. This will now be possible because investment advisers whose business is to earn money from advising clients would have to be registered. The conditions related to this are also such that the registration would be possible only for those who have the necessary net worth as well as those who are academically qualified enough to do so.

This takes care of the initial research part about an adviser because there will be some basic factors that will be present when they are actually registered with the market regulator.

Additional categories: There are several categories of intermediaries who would, however, not be registered with Sebi but would have their own work like brokers, mutual fund distributors, or even insurance agents. As long as the advisory business is incidental to the provision of the main services, they would not need to be registered. Investors would need to take a different approach when it comes to the question of using the services of these people because they will need to look at the exact kind of service that they are taking and whether this is permissible under the guidelines. These will include stock brokers, mutual fund distributors and insurance agents.

Risk profile: One of the main conditions related to the entire provision of the service of advisers is that there has to be a proper risk profile process undertaken with the client. This means that investors will have to be profiled for the risk that they can bear and this has to be done in a proper manner. The records of this will also need to be kept by the adviser.

All those who would prefer that this be undertaken in a proper manner should be looking towards registered advisers to provide the required service. It will help investors in understanding their current situation and the manner in which they can improve over a period of time. It will also help in understanding whether the investments that they are buying are in line with the risk that they can actually undertake. This is vital in choosing the right kind of asset allocation and instruments in the portfolio.

Fees: An outcome of the usage of investment advisers will also be that the payments that an investor makes would be transparent in nature. Investors will have to pay fees to the adviser for the services that have been rendered. There has to be a mention of the ways in which an adviser is earning money to the investor so as to know clearly about the source of the income for the advisor and the fees can then be fixed accordingly. This is a big step in the sense that individuals will be able to know the manner in which the adviser is earning money from them so that they are also able to frame their steps accordingly.

(The writer is a CA and certified financial planner)

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