SEBI registered investment advisor

4th July 2020 : The capital market regulator, Securities and Exchange Board of India (SEBI), has amended the SEBI Investment Advisers Regulations 2013 and has said that registered investment advisors must segregate the advisory and distribution activities.
Thus, if your investment advisor is an individual, then she can either offer you investment advisory services or distribution services. If she offers investment advisory to you, then she will charge a fee. And she cannot earn a commission from mutual funds that you eventually invest in, based on her advice.

 For non-individual advisors (a corporate or an organisation), the client-level segregation needs to be adhered to at the group level. Through an arm’s length relationship between its activities, the corporate entity may provide advisory services from a separately identifiable department.

 RIAs would also be required to have an enhanced professional or post-graduate qualification in relevant subjects, as well as relevant experience of 5 years. However, Sebi has allowed grandfathering for existing RIAs on this provision. RIAs with over 150 clients also need to apply as non-individual investment advisors. This would increase their net worth requirement fivefold to Rs 50 lakh



Are SEBI Registered Investment Advisors 

Worth It?

Are SEBI Registered Investment Advisors worth the fees that they charge? Is it worth paying someone for advice on your investments?
Let us get answers to all these questions below. Before that, let us understand different types of Investment Advisors we have in India.


Mutual Fund Distributors:
Mutual Fund Distributors technically are distributors for different Mutual Fund houses and they advise you for your Mutual Fund portfolio.
They either earn via Advisory fees paid by the investor or via Distribution fees paid to them by the Asset Management Company like HDFC, ICICI, SBI, etc. 
This distribution fee is indirectly charged to the investor via the Asset Management Company while the investor select any Regular Plan instead of a Direct Plan. This distribution fee is charged to the investor perpetually until they hold the units under the Regular plan. 
Mutual Fund Distributors can either be any individual or any institution like banks or any boutique firms. If a mutual fund distributor/advisor is advising the investor on regular intervals on the investor’s mutual fund portfolio, then it is definitely worth to pay him the distribution/advisory fee. But if a Mutual Fund Distributor is just like a selling agent for the Asset Management Company, then one must think twice before paying the distribution fee. 
If you are not sure if your current mutual fund units are under regular or direct plan, have a look at it today itself.
Also, generally a thematic fund focusing on a particular sector has higher distribution fee for the distributor but are not of much good for an investor.


Banks or Financial Institutions – Relationship Managers
Banks or Financial Institutions generally are Mutual Fund Distributors as well. If their relationship manager just sells some mutual funds to investor to complete their sales targets and does not regularly advice on managing the investor’s portfolio, one must consider whether it is worth paying the distribution fee to him / her.
To check if the institution is adding value to  the investor’s portfolio, one must make sure that the relationship manager of the Bank or Financial Institution has detailed knowledge on the products he / she is selling to the investor and should always be able to explain why a particular product is good for you after understanding your risk profiling and your financial goals.
An honest relationship manager shall always inform the investor about the fee which he / she is indirectly earning via the investor.


Independent Financial Advisors or IFA
Independent Financial Advisors or IFA are independent individuals who advice on different financial products and mainly earn via commissions paid to them by the company who’s product they sell.
This generally leads to a free service, but one must be sure if the advice is unbiased. Now with SEBI regulations reducing the commissions, many Independent Financial Advisors are shifting to Registered Investment Advisor or RIA model.


SEBI Registered Investment Advisors or SEBI RIA
SEBI Registered Investment Advisors or SEBI RIA are advisors which generally charge you fees directly instead of indirect fees for selling anyone’s products. This eventually leads to an unbiased advice as the source of income for the advisor is not dependent on any Asset Management Company. 
Investors would like to continue with an advisor only if they are happy with the returns and hence investment advisors intentions are in-line with the investors, which is to generate better returns.
So one has to decide whether saving on fees is worth jeopardising his investment goals (and in most cases you are anyways paying indirect fees)?


Best Fee Structure of SEBI Registered Investment Advisors:
Best Fee Structure for the investor is the one which is directly charged to the investor and not earned indirectly from the Investment Advisor. 
Also, fee structure in which fees charged are proportional to the returns generated for the investor is also desirable. This brings the interest of SEBI Registered Investment Advisor in-line with the investors interests.
Whereas, in a fixed fee model the Investment Advisor earns even if your portfolio doesn’t perform well. At the same time, care must be taken that the Investment Advisor does not take undue risk just to earn higher fees.


So are SEBI Registered Investment Advisors worth it?
Based on the above information, SEBI Registered Investment Advisors generally charge fees directly to the investors and hence the probability of his / her giving unbiased advice is higher. 
The SEBI Registered Investment Advisor shall initially understand the investors risk profile and their investment goals before he / she gives any investment advice.
The investment performance of the investment advisor shall also be regularly shared by him / her with you on regular intervals.
In India, we are ready to pay fees to lawyers, doctors, etc. for their advice, but somehow we are not used to paying fees to Investment Advisors. This is either because we are not aware of indirect fee structure which we are paying till this date and thought it was a free service, or we are happy with tip/advice given to us by our friends and family.
When it comes to your lifetime savings and financial goals, getting a professional investment advice with minor fees is the prudent way to go.
If you have just began to earn and are yet to have enough savings, focus must be given on ways to save. If you already have savings and want to invest your savings, SEBI Registered Investment Advisors are definitely a better option to consider.
Inadequate knowledge of the dynamics of investment leads to financial mistakes, investors should evalute themselves and check whether if its the right time to appoint a SEBI registered advisory company.
Confirm if the advisor is registered on the Investment Advisors list of SEBI