Indian regulators, fortunately, have woken up to the retail investor’s distress. The SEBI Registered Investment Adviser (RIA) Regulation, 2013, while still seen as an evolving model, is actually leading the way amongst all Asian markets to drive transparency and standardisation in financial advice. The regulation holds the key to finally dispelling the ambiguity and lack of trust surrounding advice.

But accepting and adopting this change will also depend on how well we, as investors, understand our need for financial advice. And on whether we are able to differentiate between the opportunistic or generic advice that we perceive to be free, and qualified, professional, personalised advice that can truly move the needle on our financial well-being.

So, is Your Adviser Advising You?

Financial advice should help you solve a problem. It should get you from point A to point B in terms of your financial situation. You have a certain amount of savings today (point A), you need to save for your child’s education abroad (problem to be solved), and will need a certain corpus of funds by the time your child is old enough (point B). But this advice is not as simple to give as it sounds. Why?

• • Advice that works for another family may not work for yours, because your savings, lifestyle and constraints are different. The rate at which you can achieve a goal, without compromising your current lifestyle, will be unique to you – and you need someone who is willing to take the time and effort to study and understand this.

• • You’re never really chasing one financial goal at a time. Retirement, children’s education, emergency funds, are all concurrent demands. How much to save for each? And how? How much risk are you able to take – and how much risk is acceptable for a particular goal itself? These are complexities that require a qualified person to look at your finances holistically and help you make informed decisions.

• • Making one single investment is not really complex. But building a portfolio of investments is. Asset allocation and disciplined rebalancing have proven to deliver long term returns. This requires the adviser to understand the market conditions well without succumbing to market sentiments, take corrective actions promptly and be an expert in multiple asset classes.

• • You will invest over a few decades in your life, and all of the products you invest in, be it insurance policies, equities, mutual funds or bonds, come with hidden costs that eat into your returns. The late John Bogle, legend of low-cost investing, estimated that hidden costs ate away as much as 2/3rds of an investor’s return over the long term. The right adviser will focus on getting you low-cost products that do not compromise your returns and risk exposure. He will disclose fully all the hidden costs to you and advise you on how to reduce it.

• • The term long-term investing is easily mis-understood. There is no fill it-shut it-forget it solution when it comes to investments. Each investment, however solid, needs to be reviewed periodically for the risk and return it brings to a goal. You need an adviser who will do this regularly, with no expectations of further or new investments from you.

• Market changes affect each investor, and each goal, differently. Which is why working on generic advice in times of market movements often does more harm than good. Opportunistic advice that rides on your fear or greed to sell newer investments, instead of offering an unbiased opinion on the right course of action, is far worse. Would you still say that your ‘free’ adviser advises you?