Through the decades, investors had no credible source to turn to for unbiased advice. Those offering “advice” were product sellers doubling up as advisors. They represented the product originators and sold products which offered the best commissions to them. There was a major conflict of interest in this model.
SEBI Investment Advisor (IA) Regulations
Securities & Exchange Board of India (SEBI), the financial markets regulator, had come out with IA Regulations in 2013 to correct this systemic problem in the financial service intermediation space. The regulation was introduced to raise the bar for advisors, in almost every area that is vital to the client.
This SEBI Regulation introduces stringent benchmarks & sets standards in several areas like education, experience, certification, record maintenance, disclosures, compliances etc. The regulation seeks to introduce year-end process audits, fiduciary responsibility towards clients, proper risk profiling of clients and offering suitable advice in line with their needs.
Through this watershed regulation, SEBI sought to bring in a new class of fee-only advisors and financial planners who truly represent their clients, are conflict free, client-centric & are Fiduciaries. That was a bold call.
Who are SEBI Registered Investment Advisors (SEBI RIA)?
Advisors who have chosen to register under this SEBI regulation can only be paid by their clients and no one else. This regulation also imposes a Fiduciary responsibility on these SEBI Registered Advisors. This helps in making them accountable to their clients and work only in their best interests.
A Fiduciary is someone who puts the client’s interest ahead of all other considerations, including their own self-interest. This is a giant step forward for the investor community at large. Now, there is someone who would work in the best interests of the Investors and be held accountable! They are the trusted advisors/ planners that investors have been searching for.
SEBI RIAs are held to higher standards of education, certification, certification, disclosure, compliance etc. and are hence more suited to performing an advisory role.
How are SEBI Registered Investment Advisors (RIAs) different from agents?
For the client, there are at least six significant differences between a Fiduciary advisor and an agent.
Alignment of advice
A SEBI RIA would gather complete information about their client’s requirement, study their situation, analyse options & scenarios, develop strategies to suit their requirements and come up with advice that are fully in line with their specific requirements. Agents engage with people superficially and are focused on selling their offerings.
Agents represent their principal & are largely held accountable to them. Fee-only Advisors only represent the clients and have no links to product originators. This makes the advisors independent, conflict-free & allows them to offer unbiased advice.
In general, Advisors tend to be more qualified than a distributor as that is required to be in place if one needs to play the consultant’s role.
Advisors follow the Fiduciary standard as SEBI Registered Investment Advisers (RIAs). Fiduciaries are those who have to put the client’s interest above everything else, including their own. Agents/ Distributors follow a much lower suitability standard where they can position their principal’s product, even if it is broadly suitable.
Advisors represent their clients and are only remunerated by them. There is no conflict of interest. Distributors get paid by the principals & sell to clients. They may claim that they represent the client. But the conflict of interest is very evident as they represent & earn commissions from their principals as also advice & sell to clients.
Separating advice from distribution
Agents have an inbuilt incentive to offer costly products (where commissions are embedded – hence costlier the better for them) to clients. The client has no control and has to accept whatever services are offered by the agent. They cannot pay them less or hold back the payment if they get deficient services or poor services, as these are deducted by the principal and paid as commissions to agents. In case of an advisor, the product buying and advice are separated. The advisor only offers advisory services and will get paid for it only if the client is happy with their services. The client buys low-cost products elsewhere. This gives the client complete control over what services they get and what they pay for it.
Ethics & Integrity
When it comes to financial advice, it’s critical. One’s life depends on it. An advisor hence has to be someone the client can implicitly trust. Trust is built based on the values that the advisor espouses & how s/he conducts himself/ herself. Ethical moorings & impeccable integrity is the true hallmark of an advisor who can be trusted.
Ethics & Integrity have been the defining central core, in all our dealings with our clients. Our business has been built on the bedrock of these foundational principles, ever since our inception in 2004.
We are SEBI Registered Investment Advisors
Our client’s best interest is always our focus. The clarion call of this SEBI regulation to advisors was to submit themselves to much higher standards, in almost every area. The challenge & what it meant to the investors appealed to us enormously.
Fiduciary standard brings enormous responsibility to the advisors. Advisors now need to truly act in their client’s best interest. Being a fee-only advisor and eliminating the conflicts of interest, appealed to us. The thought that we can make a telling difference to our client’s lives was thrilling in itself. We wholeheartedly embraced the regulations for RIAs where Fiduciary standard was a central pillar.
It was clear that by being RIAs, we will be invaluable to investors. We were one of the early adopters here. Suresh Sadagopan, the founder of Ladder7, is registered with SEBI as Investment Adviser (RIA) and the advisory staff are his representatives.
Ethics & Integrity are pillars on which we have built this practice. Being a SEBI Registered Advisory & a fiduciary is a major positive for our clients. Clients need no longer second guess anymore; they can trust us to offer the right advice.
We recruit & retain good talent so that we could offer top-of-the-line professional services to our clients. We are constantly striving to improve our services and have come up with innovations, to raise the bar in professional standards & service excellence. Ladder7 Financial Advisories is hence a pureplay financial advisory firm working with the Client first principle as the fulcrum.
We are always on our client’s side, working to safeguard their best interests. And that is our assurance!