The intermediaries/brokers/agents in the financial sector are not law defined, but part of the evolution of the personal finance industry. The industry matured but not all middlemen understood and embraced change. They
stuck to old practices and deteriorated the value. Sales pressure, commissions competition, and uncalled promotional offers started making a toll on real advisory. In part 1, we saw how the agents who disguised themselves as investors friend, duped the faith when they acted what they were called- as an Agent.
I have no intention to paint a negative picture of state of affairs. A few agents knew this and mended their ways. They invested into knowledge to learn new things and invested in technology to offer what investors are looking for. But major – I am saying major Agents/Brokers/Middlemen and so-called financial intermediaries did not act as fiduciaries and their advisory was biased on the commissions and gifts that they received.
And, here comes the regulator’s intervention. This sorry state of investor, piling cases of mis-sold services and never-ending conflict of interest led Security & Exchange Board of India (SEBI) to rethink this distribution strategy. And since 2013 they are on the path to making ADVISOR and not AGENTS.
This sorry state of investor, piling cases of mis-sold services and never-ending conflict of interest led Security & Exchange Board of India (SEBI) to rethink this distribution strategy. And since 2013 they are on the path to making ADVISOR and not AGENTS.
But how do you identify an Agent and an Advisor?
|
Financial Advisor |
Commission Agent |
|
| Who is he actually linked to? Is he wholistic in advice? | A Financial Advisor is a professionally qualified & trained advisor, primarily to plan your goals, strategize your income-expenses and manage complete finances, for their customers. | An agent is somebody, who represents a company or an organization. The Company owns the product and gives brokerages to this person to sell in the market. Example LIC has agents selling insurance products. Each mutual fund has given agency on an individual basis to IFAs (Independent Financial Advisors) or banks. |
| Basic Qualification and Experience Requirement | One need to undergo proper certification processes to become a Financial Advisor. In India, people who hold a qualification of CFP or Investment Level 1& 2 professionals with more than 5 years’ experience in financial services are allowed to become Registered Investment Advisors or SEBI RIAs. Security & Exchange Board of India after acquiring qualifications, registers the Advisor with a strict code and net worth requirements. The code of conduct and processes are mandatorily audited to maintain the ethics. | It’s very easy to become an agent. One has to just clear terms of appointment of the company, whose products agents has to sell to their customers. However, in Mutual Funds and Insurance now agents are also required to undergo basic training and tests, before selling products. |
| Focus of an advisor in client’s financial life | Advisors are more focused on the client’s need and requirements. They have a proper process to determine clients goals, his risk appetite, and risk management. Then they advise products available in the market as per those needs. The product is secondary. | Agents are more focused towards selling the product to the customer. They believe in turnover as high sale means high income. The customer has to decide whether he or she requires it or not. |
| How he charges or gets remunerated? | Advisors usually charge advisory fees and are not interested in commissions they make out of the products like mutual funds, insurance etc. They advise products with the low cost so that client also benefits. | Agents never ask or take an advisory fee from the customer and get commissions from the company whom they represent. The commission is also rarely disclosed to investor although it is mandatory. |
| Engagement Scope- Life? Or some transactions? | Financial Planning or Advisory is a regular and long term process. A wealth manager has to engage the customers regularly throughout life or till the goals are achieved for the investor. | Agents usually don’t engage their customers regularly. They come when they have new to offer or client has liquidity. There is no process or customer service follow-ups. The customer is often left to get all service directly from the company. |
An ADVISOR IS:
- A person who is NOT appointed by the mutual fund or insurance company.
- He is independent, qualified and experienced authority working only for investors.
- He doesn’t get commission/incentives/remuneration/brokerage/foreign trips/gifts from the product manufacturer, hence he has no conflict of interest.
- His advice is unbiased and aims to make investor invest as per his needs, in the lowest cost options taking care of investors GOALS & RISK APPETITE.
- He gets remunerated by the investors as fees for his advice, just like a doctor or your CA hence recommends only on merits and not on commissions.
In Gazette of India Dated 21 Jan 2013 called as SEBI (Investment Advisers), Regulations 2013 SEBI came out with guidelines on REGISTERED INVESTMENT ADVISORS (RIA) and laid the requirements. Link on SEBI’s Website.
They have also gone publicly to advise that people should only invest through RIAs only.
They have made it clear that a RIA is one who –
“serve a client’s best interests with the intent to eliminate, or at least to expose, all potential conflicts of interest which might incline an investment adviser—consciously or unconsciously—to render advice which was not in the best interest of the clients.”
SO PERSON MANAGING YOUR INVESTMENTS IS NOT VETTED BY SEBI AS RIA
“HE IS AN AGENT”
I know I have written, what many would not like, but I know many will get benefit in their lives. It is their hard earned money and they really need a person of integrity & competence to manage it.
Share your views what you think on this subject. Do not forget to forward who you think will benefit reading this.
