It is very important to know about your financial advisor, as you entrust him with your hard earned money. With the aim of investing, one should not buy a personal loan, home loan etc to bridge the gap between their dreams and finances just because they were forced into wrong financial decisions which were committed by your financial advisors. The Securities Exchange Board of India (SEBI) has yet again come to address the grievances of you investors. As investors, in order to make fruitful investments, you look out for financial advisors who can guide you efficiently to pursue the road of success. But it does not happen always that investors are benefited with the right information. Sometimes, due to lack of information or experience, financial advisors too can go extremely wrong pushing investors to the edge of bankruptcy. Other times financial advisors may just turn out to be fake. In order to curtail yourself from any such unfavorable experiences, SEBI has drafted to issue a regulatory authority that will look into the authenticity of your financial advisor.
So far there have not been any guidelines issued by SEBI based on which investors can look out for their financial advisors. With this new proposal issued by SEBI, the guidelines that will be issued will enable investors to run a background check on the advisor or agent to whom you plan to handover your money to. Along with this you will be benefited with a better quality advice since SEBI is also proposing to make changes pertaining to this matter.
What are the new guidelines that have been proposed?
According to SEBI the guidelines will enable financial advisors to furnish the following details to the investors:
– An individual, in order to be qualified as a certified financial planner should be a Chartered Accountant or hold an MBA in finance or a similar qualification or should have relevant experience in this field for at least 10 years. Also they need to hold a certification from organizations that are approved by SEBI such as the National Institute of Securities Markets.
– SEBI has proposed to set up a centralized self regulatory Organization (SRO) which will hold the authority to frame rules for advisors and as well as monitor their activities. Prospective financial advisors, portfolio managers and even banks which advice on financial instruments, will have to register with the SRO and must comply with their rules and regulations.
– An advisor will be considered to be independent only if he/ she directly provide any investment related advice and not represent any particular company.
– In this new proposal, investors will have to showcase complete transparency while dealing with their customers and make sure that they know whether he is an independent financial advisor or if he represents any company.
– Advisors also need to carefully document the risk nature of their clients and maintain them for at least 5 years, before providing any kind of service. If any verbal advice is provided it has to be recorded and saved. Currently, because of the non availability of this information, investors do not possess any proof of any transaction in case of fraudulent practices.
– The problem of mis-selling is also bound to be eliminated once this system is implemented since agents generally recommend products of those companies by which they get to earn higher commission. This generally happens even though customers do not prefer it.
Who do not fall in this ambit?
Newspapers and broadcast media, brokers, sub brokers, advocates, chartered accountants, persons giving advice without any fee or charge and insurance persons who provide insurance related advice under the regulations specified by the IRDA (Insurance Regulatory Development Authority) are not covered in this proposal.
As per this broad reform undertaken by SEBI, you as an investor are safeguarded from fraudulent practices and are assured to get a better quality advice along with assured higher transparency. Also, after implementing this proposal, financial advisors will also be encouraged to develop their skills and upgrade their quality of service.