Imagine you’re at a high-end luxury car dealership, ready to test drive your dream ride and make it yours. But instead of the salesperson understanding your needs and helping you find the perfect car for your requirements; they’re pushing the one with the highest commission. That’s exactly what sometimes happens when you rely solely on insurance/investment product distributors.
Here’s the key difference: Distributors sometimes can be like those commission-hungry car salespeople. Don’t get us wrong, we aren’t saying all distributors can be focused on selling products to you. There can be good ones out there that are not completely motivated by commissions. However, it’s human nature to focus on the thing that pays your bills, which at the end of the day are sales.
That’s where the Investment Advisor steps in, Your Personal Financial Guru!
Think of an investment advisor as a fixed salary employee, who’s motivations are not driven by sales. A financial advisor gets paid either a fixed fee or a percentage of the assets they are managing for you. So it is in their best interest to continue to give you the right advice, so that you stick with them the following year. Now don’t get us wrong again, not all financial advisors might be good. But since their interests are aligned with yours, at least their motivations are not in question.
Distributor | Investment Advisor | |
Qualifications | No formal qualifications needed. | Requires certifications like National Institute of Securities Markets (NISM) IA Certification, or SEBI-Registered Investment Advisor License |
Services | Focuses on selling specific products (mutual funds). | Provides broader financial guidance (planning, management, advisory) |
Compensation | Earns commission on mutual fund sales. | Charges fees for the services offered like managing assets or planning finances. |
Responsibilities | Ensure that product features fits to customer needs. | Holds a legal duty to act in the client’s best interests. |
How do you identify a Financial Advisor in India?
Look for the SEBI stamp of approval! A trustworthy investment advisor is a SEBI-Registered Investment Advisor (RIA). This means they’re licensed by India’s financial watchdog, SEBI, and have met strict qualifications. Why does this matter? RIAs are legally bound to:
- Put your needs first: They have a fiduciary duty to act in your best interest, not theirs.
- Be transparent: They are required to disclose all the fees and details about the services.
- Keep good records: They are mandated to maintain a clear history of your financial journey together.
- Follow the rules: RIAs comply with SEBI regulations which are there to protect your investments.
By choosing an RIA, you get a qualified advisor who prioritizes your financial well-being.
Hack to find out if the advisor is SEBI registered or not, go to the SEBI RIA list and search for the person/entity’s name, if it shows up, you know they are a registered and trustworthy advisor.
Choosing the Right Guide for Your Financial Journey
In a survey conducted by Cashvisory with over 500 young working professionals, over 50% of respondents were unhappy with their financial advisors. On further investigation, it was found that they were product distributors and not advisors. Know the difference between the two and find the right expert that can guide you through thick and thin.
You might be working with a good distributor, who truly has your best interest at heart. But how would you know this? By learning the basics of personal finance yourself so that you can distinguish between good and bad advice.
Things to consider before choosing your financial guide:
- Analyse your needs and check if they offer those services
- Be aware of all kinds of costs/fees you’ll be paying
- Check their certifications and registrations to ensure credibility
If you’re just starting out, look for a SEBI Registered Investment Advisor such as Cashvisory. This might be a great starting point, while you continue to learn through experience.