In Search For The Right Financial Advice

Investment advisory in India was fragmented for a long period of time. In the 1990s and early 2000s, most people relied on brokers, mutual fund distributors and insurance agents, but more for making investments rather than for seeking advice. The other set of advisors by default were chartered accountants, who while helping individuals file their tax returns also informed them about investments that could reduce the tax liability. Until then, the most sold products were insurance policies and bank fixed deposits.

It was only in the mid-2000s that financial advisory entered India, with the Financial Planning Standards Board spreading its wings beyond the US to issue certified financial planner (CFP) certificates. When FPSB came to India in 2004, the concept of financial planning took centrestage, especially after 2007 when the Securities and Exchange Board of India (Sebi) allowed direct retail investments in mutual funds.

It was much later in 2013 that Sebi floated the concept of Sebi-registered financial advisors, who are now among the most trusted individuals for disseminating financial advice.

Still, India remains massively under-advised though the appetite for investments has gone up manifold. After 10 years since the inception of Sebi RIAs, there are only 1,331 RIAs in India against at least 120 million demat account holders and a little over 150 million mutual fund folios, as on July 13, 2023, according to the latest data. There are 139,764 MFDs in India as on June 30, 2023. To know more about financial advisory in India, read our freedom special (bit.ly/3Eoajrv).

Little wonder that holistic financial advice still eludes a large chunk of Indian investors, especially in tier II and tier II cities, who remain dependent on brokers, agents, CAs, bank managers, and even financial influencers or finfluencers.

The latter are now under Sebi’s scrutiny. In a recent interaction, Sebi chairperson Madhabi Puri Buch indicated that some regulatory measures for financial influencers are in the offing. Moreover, the Advertising Standards Council of India (ASCI) recently made it mandatory for finfluencers to register with Sebi or the Insurance Regulatory and Development Authority of India (Irdai), depending on the kind of advice they were providing.

The Way Forward

Sebi is tightening the noose around brokers and agents to curtail mis-selling, which is still widespread. It is still to be seen though how and when the financial advisory domain settles in India for the customer’s benefit. The regulations are expected to be the key to resolving the problem of mis-selling.

The rise of technology and digital platforms have posed a number of challenges, but at the same time have helped spread financial awareness. Major regulators in India, including Sebi, the Reserve Bank of India (RBI) and Irdai have financial literature that can help customers make the right decisions. However, the need of the hour is to disseminate it through the right channels. In the interim, many genuine advisors may suffer (bit.ly/3qDaqMj) but that is a price that may need to be paid for healthy customer-centric advice to proliferate in India.

Then and Now

Kuntal Kumar

Kuntal Kumar in 2007 (Left) and in 2023. Photo: Photo: Shome Basu

Dehradun-based Kuntal Kumar, 46, has come a long way in his investing journey since his first interview with Outlook Money in the summer of 2007 when he and his wife were expecting their first child. At the time, he was a young professional in the hospitality industry, while his wife Nisha juggled between being a homemaker and an HR professional. They now have two children, son Savya (15) and daughter Saatvika (9).

The couple is well-settled now and has managed to fulfil most of their goals they had envisioned as 20-somethings. It is now just about managing their corpus and savings well. They are financially secure and are not dependent on a regular job. Kuntal diversified his investments from fixed deposits and annuity plans to shares and mutual funds, which helped him grow his wealth quickly.

Kuntal changed his investment strategy drastically after Covid. Before that, he invested only in equities, but now maintains a debt portfolio too.

He initially planned to retire by the age of 45, but has taken up a consultant role in line with his planner’s advice. This ensures he has steady income and has ample time for his family and hobbies. In his free time, he writes blogs, travels, and meets people who could help him with new business opportunities.