SEBI Registered Investment Advisor(RIA): Your trusted partner in your financial journey.

SEBI Registered Investment Advisor is a new word for an Indian investor couple of years ago. They were more familiar with the word Financial Planner. But now a day this word is also getting familiar with the investors too thanks to the social media. Investors are curious to know more about SEBI RIA ,services they offer, value they provide to their customers and nature of their work etc.

And till last decade common man relates a word advisor to Insurance advisor/Agent only, who sells Insurance products. Then came Mutual fund distributors who sell regular plans. The main thing to consider here is that these persons are attached to the particulars Insurance company/companies or AMC/AMCs. There main objective was to earn commissions received from the particular products.

As the model is commission based lot of miss selling has been happening since long. Only those products were marketed and sold to the customers where agents we’re getting huge commissions. If you look at the insurance products our parents were having are mostly traditional insurance policies such as money back, endowment plan, whole life plans where insurance and Investment are mixed. Commissions received from these traditional products were huge. But whether customer’s need was satisfied? The answer was No. Big NO. Returns from these traditional polices were very less sometimes less than inflation and customer was under insured as he may be able to pay huge premiums for higher sum assured. Same pattern was found in mutual fund distributors too. Dividend payout options were suggested to customers even if not required, sectorial or thematic mutual funds were sold without checking the risk taking ability of the clients. At the end Customer was at loss as his Interest was not taken care.

In 2013 SEBI came with the Investment Advisor Regulation which has introduced a new version of the Investment Advisor that is RIAs i.e. SEBI Registered Investment Advisor who works as Fee only Investment Advisor. He/she will act in a Fiduciary capacity towards its clients and shall disclose all conflicts of Interests as and when they arise.

The main purpose of introduction of this regulation is to protect the interest of Clients. RIAs have to keep arm length distance with distribution channels and their only earning is from the Fees clients pay. They won’t receive any commissions from Insurance companies or Mutual fund AMCs or any other entities. So the advice given by RIAs are totally unbiased and customer centric. They sit with the customer side of the table not the other side/ front side of the table. It means all the suggestions provided will be purely based on keeping customer’s interest on upmost priority and each and every suggestion will be personalized keeping individuality in mind.

SEBI RIA is the person who does Comprehensive Financial Planning for the individual which includes

  • Insurance planning both life and health

  • Retirement planning

  • Goal based Investments in different assets classes mainly in Equity and Debt.

  • Children education and marriage planning

  • Real estate management

  • Loan Counselling and Management

How do they prepare client’s financial plan?

  • First of all Investment advisors collect all the information pertaining to client’s existing investments in different asset classes, their life goals, their existing insurance policies, their expenditure pattern etc.

  • They access client’s risk profile by analyzing the answers stated on risk profiling questionnaire by their clients.

  • Financial Planners main job is to help client identify their goals, priorities them according to their investible surplus. Investment advisor arrive at the future cost of the goals after taking inflation into account.

  • They suggest their clients suitable financial products according to their risk taking capacity and time frame of these goals.

  • Investment advisor support their client for full one year of their engagement for any financial queries.

Understand these important points:

SEBI RIAs mostly prefer investment in equity through mutual fund route only. Most of the RIAs don’t suggest any direct equity to the clients. Investing in equity mutual funds through SIP is the best option available to create long term wealth.

RIAs do careful study of individuals profile pertaining to his/her age, occupation, income, family responsibility and risk taking ability while suggesting appropriate Mutual fund SIPs based on historical data.

But as you all know Mutual fund investment is subject to market risk and no one can predict what will happen in the future. Where market will go.

But their suggestions are based by thorough study and analysis. It can not be compared with random advice by a friend or a relative.

Nobody can predict the market. Nobody can time the market. Not even RIAs or any market expert. RIAs always focus on long term investment in Equity and prefer Debt option for any short term goal.

When you stay invested for long in equity you experienced 4/5 rallies of bull and bear market. If you stick to your SIP you can average out the cost of your purchase. So losses in short term can be changed into profits in long term if you keep invested for long. But if you stop your SIP seeing negative returns in short term you let go the chance of turning it in positive.

What do SEBI RIA not do?

Don’t provide stock specific advise. They mostly prefer investment in equity through mutual fund route only over direct equity.

Don’t tactically change asset allocation based on short term/daily fluctuations in the market

Don’t do frequently reviews of financial products suggested to the clients. Review is typically done once a year or in exceptional situations once every 6 months.

Good Investment advisors always try to manage the downside risk rather than maximizing the returns for customers. So they don’t suggest very risky financial products even if client is ready to venture it out.

SEBI RIAs doesn’t try to generate high return by suggesting fancy financial instruments. Good RIAs always encourage clients to expect reasonable rate of return from their investment.

Last but no least Investment Advisor does not guarantee the returns earned on the investment especially equity investment made by the customers on their advice. Nobody can predict the market. Nobody can time the market. Not even RIAs or any market expert.

So if your Investment Advisor doesn’t do the listed things, you are in safe hands or else you need to change your advisor. As above mentioned things are not necessarily needed in Financial Planning.

I always compare RIA to your doctor. Doctor’s job is to identify the disease and it’s causes and prescribe the appropriate medicine. Doctor’s skill and knowledge helps us to get cured early and easily. Instead of self medication when we consult Doctor, our time is saved, and we got relived from pain on time. Doctor’s fee is negligible for us at that time.RIAs work in same way. He/she helps you in saving your most valuable thing i.e. TIME which you would have wasted in trial and error method/ DIY method in investing. And ultimately your money is also saved. Their fees should also be considered negligible in front of your bright future.

SEBI RIA is your guide, friend and philosopher in your financial journey. If you walk with him/her in this journey you will experience lesser bumpy rides, lesser headache and lesser panic attacks compared to walking alone. Financial planner will hold your hand firmly and help you sail through the trouble if any smoothly. Trust them. Have faith. And be with them.

So when Financial Planning is concerned SEBI RIA is your trusted partner. It is always better to hire SEBI Registered Investment Advisor(RIA) as your financial planner who has a valid license from SEBI to work as Investment Advisor or Financial Planner.

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