Quality of Financial Advice can change Quality of Life
Partha Sinha, Times of India 17/9/13
For several years, it was the friendly neighbour who sold insurance, post office savings products and, at times, mutual funds in India. Over time, they would become family friends and their business would mostly grow through referrals. They would be family’s financial advisors, agents for selling investment instruments and financial planners — all-in-one financial intermediary.
The times have changed. And with it, the friendly neighbour who sold and advised about financial products has also changed in most big cities and in some towns. The people who now work as financial intermediaries have now started specializing in various fields, such as financial advice, financial planning, broking, agency business, etc.
However, along with the growth and specialization of these businesses, for some reason, there is also a growing confusion among a majority of people about what type of professionals would serve their purpose in the best possible way.
Besides, as an investor there are some fundamental issues that you should remember while choosing a financial intermediary . "While selecting a financial intermediary, the basic question you should ask is ‘Is he bound by a regulation to act in my interest?’, said Rajesh Krishnamoorthy, MD, iFast Financial.
The answer could be in yes or no. This is important because market regulator Sebi has now come out with regulations for financial intermediaries under which anyone advising clients on financial products which are under the jurisdiction of Sebi and is not registered with it to advise clients, is deemed to be acting for the manufacturer of financial products, like mutual funds, portfolio managers, stock brokers etc. So simply put, if a financial advisor is registered with Sebi, he/she is bound to act in the interest of his/her clients. And that could be for a fee that the two parties can agree on.
"Most investors should go to a person who answers yes. They need the support of a financial planner who looks at the person’s income statement, plans future financial path, looks at ways of covering risks, sets up an emergency corpus, etc. They are the ones who will put in place a long-term framework for reach your financial goals," said Krishnamoorthy . He also had a word of advice for investors: Remember the quality of advice can change the quality of life of people in future.
If an entity answers in the negative to the first question, he/she will be taken as an agent of the manufacturer, and may not serve in the best interest of the investor. Worse, there could be some conflict of interest as well, market players said. Investors can also choose to go to these intermediaries, but usually investors who are well informed and financially savvy do that.
Intermediaries in India
Independent financial advisors (IFAs):
As the name suggests, IFAs usually work on their own, advising their clients on various financial products. They usually sell mutual fund schemes of all or several of the fund houses, in addition to selling post office products, company FDs, insurance, etc.
They usually run specialized firms to serve individual clients as per their needs. They prepare tailormade financial plans for their clients after detailed assessment of the client’s long term financial goals, risk-taking capability, their current financial status, income, expenditure and a host of other factors. They prepare financial plans that may incorporate debt, equity, insurance, real estate, gold, emergency corpus etc.
Relationship managers and wealth managers:
These professionals usually work for banks or large distributors. Since they are employees of an organization, as they shift from one organization to the other, they are often found to be more concerned about their commission and not the interest of their clients. Also, most wealth managers prefer to service high networth individuals.
These are usually firms that sell mutual funds to their clients. In India, there are several large and small MF distributors. Although they advise clients on various MF schemes, it’s not always they act in the best interest of their clients.
Life insurance agents:
These professionals sell insurance products but of only one life insurance company. Regulatory norms do not allow any one agent to sell products of more than one life insurance company.
Usually people who deal in shares are called brokers, but they could deal in other financial or other assets as well. Other than stock brokers there are insurance brokers, real estate brokers and several other types of brokers classified according to the products they deal in.
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