There are very few people in life whom you could confidently say to be acting in your best interests. Mostly, people act in their own interests - which ofcourse is natural. The ones who act naturally in your best interests can be counted on the fingers. Your own parents, spouse, siblings may act in your best interest. Beyond that, finding those who have ones interest at heart is going to be difficult. The problem is that these people cannot advice you in all areas. So, there is a need to confide in others, in certain areas.
We go to a doctor for health issues. We have no other option. The doctor acts in your best interest and charges a fee for advice. The same is true with a lawyer, who represents his client in the court of law. These professionals represent their clients and act in their best interests. This is the concept of Fiduciary care.
A Fiduciary is someone who puts the client interest ahead of everything, including their own self interest. This is so comforting, especially in specialised domains, as the family cannot help anyway.
There was a domain where fiduciaries were marked by their absence - financial services. But over the years, legislation all over the world have been moving towards giving the customers at large an option to access advice, which is in their best interest. Some countries like Netherlands and UK have even dismantled commissions on products and has moved to a fee-only advisory model to make the advice conflict-free. There has been charges that, due to this, some of the clients who were serviced earlier by product sellers have become “orphaned”. While there may be some merit in the criticism, there is merit in what the regulators in those countries have done as well. They wanted to put in place a fiduciary advisory structure.
In India, SEBI has brought in Investment Adviser Regulations in 2013, where they have sought to create a new breed of advisors who will be Fiduciaries, would advice clients for a fee, not depend on commissions from product sales & have least conflict of interest. Any conflicts of interest that may be there like commission income arising out of past assets, referral fees from other professionals etc. would need to be disclosed to the client.
There are just over 700 Registered Investment Advisers ( RIAs ) with SEBI. A beginning has been made to offer the clients a choice of the kind of advisor, that they want to have. A SEBI registered adviser will also have to comply higher standards in Education/ experience & Certification, have to undergo yearly process & compliance audits, need to maintain documentation on services provided to clients, do risk profiling & have clear rationale for recommendations made. This is a clear departure from the Caveat Emptor ( Buyer beware ) approach which is prevalent in the financial services space.
There is another development which has happened about two years back which has given a boost to fee-only Fiduciary practice - Direct plans became available on MF Utility platform and SEBI had directed that the feeds of Direct plans be made available to RIAs. This enabled an investor to access advice from a RIA for a fee and invest in Direct plans, which charge a much lower expense to the scheme. By this, there may not be much cost savings to an investor as a fee is being charged by the RIA separately; but, since the advice & product sourcing are separated, conflicts of interest are avoided.
Now, investments in Direct plans can be done in multiple ways… one could invest through MF Utility, which is an industry platform that allows one to invest in Direct plans. The other option available is to invest in Direct plans through the MF house’s website itself.
There are also many online portals which deal in direct plans like Invezta, Orowealth, Unovest, Bharosaclub, Wealthfront, Clearfunds etc., which makes investing in Direct plans easy. Many of these offer a certain level of reporting too, for facilitating proper reporting for the investor. Some of them also offer automated advice ( popularly referred to as roboadvisory ), at a charge.
In sum, the financial services space is offering more variety to the investor & allows the investor to choose which kind of advisor to engage and which channel one could go to get their products. That is clearly in the best interests of the investors!
#SureshSadgopan #FinancialPlanner #FinancialAdvisor #Fiduciary #LifePlanning #FeeOnly #HolisticAdvice #Ladder7
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