Why did I become a fee-only financial planner?

I am feeling happy today and I want to share the reason with you. I just received my certificate of becoming a ‘Registered Investment Adviser‘ from Securities and Exchange Board of India (SEBI).

It had been a work in progress for long. Finally, it’s here. It allows me to practice as an Investment Adviser or Financial Planner.

If you are wondering as to what’s so special about having a SEBI registration, FYI, without a registration, SEBI does not allow anyone to represent himself/herself as a financial planner, advisor, investment advisor or any with other name and offering any such services.

Actually SEBI brought out SEBI ‘Investment Advisers’ Regulations 2013, under which this registration is mandatory for anyone who wants to practice as one of the afore mentioned titles.

Let me take you through a quick journey of how does one get registered as an Investment Adviser with SEBI.

There are 3 key steps:

Step #1

The first step is to appear for and clear 2 exams from NISM, a SEBI authorised agency for conducting examinations for those who wish to make a career in the securities markets or as investment advisors. The exams that I appeared for this registration are Investment Adviser Level -1 and Investment Adviser – Level 2.

And by no stretch of imagination can you call them a cake walk. They really test you out with multiple choice questions and case studies on several topics which include,

• Understanding Securities Market and Performance – Equity Markets, Debt Markets, Derivatives, Risk and Return aspects
• Operational aspects of Financial Transactions – such as KYC
• Personal Financial Planning – Budgeting
• Comprehensive Financial Planning – Goal Setting, Asset Allocation, Portfolio Analysis, Debt Counselling, Insurance Planning, Retirement Planning, Tax and Estate planning
• Product Analysis and Selection – Portfolio Construction, Optimisation
• Regulatory and Compliance Aspects – SEBI (Investment Advisers) Regulation 2013

Step #2

Once, and only after, you have received these certifications comes the application stage where one has to apply to SEBI in a prescribed format along with several supporting documents and the application fee.

These include your certificates of the 2 tests that you took, details of infrastructure that one has to service clients, a net tangible assets report, past 3 years income tax returns, credit report and score from CIBIL and several other undertakings and declarations.

Step #3

Once the application is cleared by the Investment Management Department at SEBI, not before clarifying various aspects of the application, one becomes eligible to receive the certificate to practice as “Investment Adviser“. Of course, another fee to be paid this time. 🙂

So, you see it takes time and effort to earn this.

Finally, I passed through all these stages and have received my certificate. I can now officially call myself an ‘Investment Adviser’.

This is just the beginning

It doesn’t stop here. SEBI further requires to implement several measures to ensure that the ‘Investment Adviser’ acts in the best interest of the investor clients.

To that effect, registration with SEBI brings in several sets of duties and responsibilities for the Investment Adviser. I list some of them below.

1. An investment adviser shall act in a fiduciary capacity towards its clients and shall disclose all conflicts of interests as and when they arise.
2. An investment adviser shall not receive any consideration by way of remuneration or compensation or in any other form from any person other than the client being advised, in respect of the underlying products or securities for which advice is provided.
3. An investment advisor shall not enter into transactions on its own account which is contrary to its advice given to clients for a period of fifteen days from the day of such advice.
4. For risk profiling, investment adviser shall ensure that it obtains from the client, such information as is necessary for the purpose of giving investment advice, including the following:-
   1. age; income details;
   2. investment objectives including time for which they wish to stay invested, the purposes of the investment;
   3. existing investments/ assets; liability/borrowing details;
   4. the risk a client is willing and able to take, including assessing a client’s capacity for absorbing loss;
5. An investment adviser shall maintain the following records, for a minimum period of 5 years and subject to yearly audit, which can also be inspected by SEBI:
   1. Know Your Client records;
   2. Risk profiling and risk assessment of the client;
   3. Suitability assessment of the advice being provided;
   4. Copies of agreements with clients, if any;
   5. Investment advice provided, whether written or oral;
   6. Rationale for arriving at investment advice, duly signed and dated;
   7. A register or record containing list of the clients, the date of advice, nature of the advice, the products/securities in which advice was rendered and fee, if any charged for such advice.

Now, this was just a summary. The actual requirements run into pages. And yes, I will comply with them too.

And you know SEBI can take action against the Investment Adviser if s/he acts in contravention of the guidelines.

So, why did I choose to be a fee-only financial planner?

One simple reason. I want to serve you with my interests aligned to yours, ABSOLUTELY.

As you might know, I have been into investment advisory in a previous avatar. I have witnessed, there is a major trust deficit in the financial services space.

You have been hitherto dealing with agents who sell your products – mutual funds, insurance, etc.. The question that you need to ask is whose agent are they? Yours? Unlikely. Because whose agent are they depends on who they are paid by?

The agents and distributors are compensated by the mutual funds, insurance companies, etc. In that sense, their true masters are the organisations who pay them. Not you! I emphasise NOT YOU!

For too long transaction agents, the sellers of financial products, have been mistaken as advisors. It has been believed that they act in client’s best interest. But that is just not possible! There is an inherent conflict of interest in the interaction with your adviser, sorry agent.

You can never even hope to get unbiased, reliable advice without removing this conflict from the picture. You have to differentiate between advisors and agents.

So, as I said, I want to totally align myself and my interests with your well-being. As a frequent reader of this blog, you will know my approach towards money and investments.

My fee or any compensation for the advice will come from my investor clients only. I will NOT earn any commissions or brokerages from the sale of any investment product, whatsoever.

One simple step towards this is that I will ensure that you do your transactions in as close to zero cost as possible. For example, direct plans of mutual funds.

My intentions matter more than anything else but SEBI would not allow me to practice as an investment adviser or financial planner without the registration. So, I now subject myself to regulatory supervision too.

I have had the fortune to be associated with investor clients who have placed their trust in me. And I am glad to have served them and earn their trust.

I would like to end this note by saying that you have inspired me to reach this journey so far. Thank you for being a part of it. As we move forward, I hope to have your company.

Have a great day!