Sadique Neelgund, Founder of Network FP, shared his views at the Morningstar Investment Conference held in Mumbai on October 23 & 24, 2018.
Below is an excerpt from that discussion moderated by Dhaval Kapadia, Director - Portfolio Specialist at Morningstar India.
Why is the Investment Adviser model not picked up in India?
Whenever we speak about RIA model, the adviser fraternity gets very emotional. The views are polarized. Let us start with the assumption that there can be a middle path - RIA + Distribution.
It has been 5.5 years since SEBI introduced RIA regulations. As of now, 1,054 RIAs are registered with Securities and Exchange Board of India, or SEBI. Of 1,054 RIAs, around one-third, which is roughly around 350 or 400 are actually into financial planning and wealth management practice. The rest of them are into stock tips/research. In fact, many of them haven’t even started the practice after taking the RIA license.
Of 400 RIAs who are into financial planning, less than 100 practice fee-only advisory. The rest of them would have distribution as parallel setup to RIA model.
So, the RIA model seems to have hit a roadblock as we have diverse set of people coming into one kind of regulation. The regulator needs to offer some medium-term clarity on the direction of regulations. Confidence in any business comes with clarity. If there is lack of clarity, how would we take it up as our career?
Secondly, I think the regulator has tried to tell people which particular model to select. This approach may not work. Instead, there should be transparency in the existing models. Let the consumers chose which model they prefer. There are different kinds of investors. Some are comfortable with embedded structure while others don’t mind paying fee.
You've been a big advocate of financial planning model. How should advisers convince clients to pay fee?
Yes, but not at the cost of playing with the lives of thousands of financial advisers. Having said that, there are different kinds of investors with varying needs. There are investors who are paying fee. We don't have to convince people to pay for advice or tell them the importance of paying fee for advice. Rather, we need to be transparent and give a choice to investors.
Some RIAs are running parallel distribution setups. Someone in their family is running the distribution arm. All they have to do is bring that Chinese wall and give an option to people and let the consumer choose what they want.
What are the two top things advisers need to focus on?
With so many robo advisory firms coming up, advisers should focus more on getting deeper understanding of clients - adopt life planning approach. Secondly, advisers should learn behavioral coaching. Life planning and behavioral coaching are the future of human advisory.
