It is very important to know relevant regulatory registrations of your investment adviser. It is also very important to know who is paying for the advisory services you are receiving from your adviser. If you are not paying directly to your adviser, then you may be paying much more indirectly in the form of commissions. SEBI advises people to deal with SEBI registered Investment Advisers. SEBI registered investment advisers have a fiduciary duty towards their clients.
A fiduciary investment adviser has a duty to act in your best interest
A fiduciary duty is a legal requirement ensuring a professional (financial adviser, lawyer) acts in their client’s best interest. This is the highest standard of care under the law. SEBI-Registered investment advisers are the only type of financial adviser that acts as a full-time fiduciary.
Mutual fund distributors, stockbrokers, insurance agents, and other types of adviser-sales roles don’t always have to act in your best interest depending on the situation. Wearing multiple hats makes it difficult to know when your adviser is acting as a fiduciary if circumstance requires it. When a financial adviser isn’t prioritizing your best interest, how can you trust the advice?
Fee-only vs commission based financial advisers
Fee-only investment advisers are ONLY paid by their clients, typically as a percentage of assets under management (AUM) and they do not receive commissions. Fee-only investment advisers also don’t accept compensation from third parties, like referral fees or other sales revenue. These are always registered with SEBI as Investment Adviser.
Commission basedadvisers usually charge clients a fixed annual fee for financial planning. But they also receive big commissions for selling financial products and securities to their clients. The commissions on these products can be substantial which can create concerns about conflicts of interest. This type of adviser can also receive referral fees and other third-party revenue. They are normally registered as distributors with various mutual funds, insurance companies.
How to Find a Fiduciary Fee Only Investment Adviser?
There are several ways to find a fiduciary investment adviser. Because it’s a big decision to partner with a financial adviser, consider including a few different methods in your search.
Referrals from friends, family, and co-workers
A personal referral to a fiduciary financial adviser from someone you know can be one of the most effective ways to find an adviser, but it isn’t fool-proof. As discussed, due to the complexity and jargon of the industry, investors don’t always know if their money manager is a fiduciary or how they’re paid.Personal referrals are especially helpful to get a sense of fees and services. Asking around can be a helpful starting point but consider doing your own research on the planner and firm before engaging.
SEBI’s adviser search
The SEBI offers an online search for investors to research registered investment advisers by name. The database is most useful to do due diligence on an adviser, not necessarily to gather a preliminary list of names. But before moving forward with a fiduciary investment adviser, consider looking them up for background information, disciplinary actions, etc.
Devendra Bairathi, Founder – Five Capital (www.fivecapital.in) is proud to be:
· A fiduciary investment adviser· Fee-only investment adviser
· Independent
· SEBI-registered investment adviser ( SEBI Reg No. : INA000004039)
We invite you to learn more about our offerings at www.fivecapital.in or reach out to us at devendra.bairathi@fivecapital.in