Is your investment agent right for you?
Updated: Jan 29
I was talking to my school friend the other day when she mentioned has finally decided to invest in mutual funds. I was really surprised and happy for her as she was one of those who never took her money seriously. I told her that this decision of hers is clearly a big leap towards financial independence and that the next step – to make the right decisions – is perhaps the toughest.
The silence that followed made me realise that women need more support and encouragement after they have decided to invest in mutual funds than before their decision. The Basis app and our FB community Life on My Terms are places where women get an opportunity to discuss their investment choices and here they can figure out whether their choices are good or not in keeping with their financial goals.
I personally believe that investors can sail through the hurdle of making a wrong decision by taking help from professionals instead of gambling with risk and taking the plunge on their own. The advantages of taking help from professionals are many, especially if you are a novice like my friend. But it is necessary to make the distinction between those individual agents who distribute only mutual fund schemes and Registered Investment Advisors who provide advice. Confusing them for each other can actually hamper your investment climate.
Who do you take financial advice from?
Adverts about mutual funds tend to make you feel that anyone can give you the right financial advice, but in reality, such is not the case. Enter Mutual Fund Distributors (MFD) and Registered Investment Advisors (RIA).
An MFD, be it an individual or company, facilitates the buying and selling of units of mutual fund to investors and earns upfront or trail commission for bringing in investors into the mutual fund schemes.
RIAs are certified advisors (firms/companies or individuals such as Basis) who act as a fiduciary (Trusted party working in the interest of the investor) to the investors, helping them invest in a manner that delivers good financial returns. To make things more clear, the two are differentiated here.
SEBI regulations for MFD and RIA
In 2016, The Securities and Exchange Board of India (SEBI), the market regulatory body in the country, outlined a draft regulation to the rules governing mutual fund intermediaries in the country where it was proposed that mutual fund agents should make a choice between registering as an MFD or an RIA.
If the draft SEBI regulation becomes law, an agent, if she or he is registered as an MFD, cannot provide financial advice to investors, leave alone getting paid for it. MFDs can only describe the product after disclosing the commission they would levy on investors for distributing mutual investment schemes.
On the other hand, all advisors were asked to register themselves with the SEBI and it was made mandatory for the RIAs to conduct both risk profiling and suitability analysis of all their clients. They have to sign an agreement with the investors stating the nature of the service they offer, the fee structure and the term of the contract. However, an advisor cannot distribute MF schemes, even as part of the advice.
MFD or RIA, who gives you more value?
Both the RIAs and the MFDs help you with your investment decisions but it is the value they add to your knowledge of investment that actually makes the difference.
An MFD is more likely to focus on mutual fund products since most of them are provided with some kind of product training by a corporate entity they work for. Hence, an MFD might prioritise his or her company’s interest over your financial interests while selling the product. However, they are regulated by the Association of Mutual Funds in India (AMFI) to not sell schemes that are not suitable for the investor as it would qualify as a missell which is an offence.
After being in the personal finance industry for more than a decade, I have realised that investors are people who can definitely understand and appreciate advice that is independent and free from biases caused by a commission or product sales structure. Here is where the RIAs come in. At Basis, we are Registered Investment Advisors, RIAs who plan investment based on the client’s requirements and not on any other entity.
RIAs provide overall wealth management and have excellent knowledge about the product that are available in the market. If you want somebody to make a detailed financial plan for you, profile the appetite you have for risks, including assessment of your assets, liabilities, income and expenses and make changes to your portfolio, an RIA is perhaps the best for you.
So, if you want to invest in mutual funds and enjoy the perks you get from them, its high time you take you RIA seriously. Better still, just download Basis app and let our proprietary algorithm take specific details from you and suggest the best plan to meet your financial goals.
To learn more about money management, discuss all things money with a community of financially independent women and get personalised guided investing, sign-up for Basis now. India’s only personal finance platform focussed on women.