Manikaran SingalSince 2009, SEBI has been coming up with spree of regulations to increase transparency in investment advisory business, with special mention to mutual funds. Starting from discontinuation of the entry load of 2% in 2009, to the launch of direct plans in mutual funds in 2013, SEBI has reduced cost of investment in mutual funds to a considerable level. However this is not enough for it and there’s one committee headed by Mr Nandan Nilekani, which is still working on ways to bring the cost structure further down.This is not all, SEBI decided to regulate the Investment advisory space too and came up with SEBI (Investment advisor) Regulations in 2013. Now it is mandatory for all those who provide investment advisory services to get registered with SEBI and comply with the Regulations. SEBI has barred the use of title “Investment adviser” for those who are not registered.The purpose behind all this is two fold. One is to give the power of decision making in the hands of consumer so they can decide on themselves as to how much they want to pay to the intermediary for the services offered, and also to bring professionalism in investment advisory space by regulating the advisors. Now there’s clear demarcation between investment advisers and product distributors. Many investors are confused with these changes and have started feeling that their cost of investment has been reduced, which is true to some extent. But the actual purpose behind removing entry load and coming up of direct plans is to do away with the indirect costs that investors pay to the advisors/distributors, and now they can chose the advisor carefully and pay them directly as per the service offerings expected. And this is beneficial for the investors as now they don’t get pushed with offerings, which is beneficial more to the distributor then to them.Even investment advisors are registered to remove the conflict of interest from their advisory. If one is SEBI registered investment advisor, then he should not be earning anything from the product manufacturer, and thus there’s no attraction left of selling a specific product which otherwise would have earned them huge commission. Registered advisors will only advise those products which would fit into investor’s risk profile and requirement. And to keep check on this, the process followed needs to be documented and regularly audited, mandates SEBI. Case of direct plans in mutual funds:Direct plans as the name suggests are those which doesn’t have any intermediary in between. This is something that can be directly invested with the mutual fund houses. When there’s no intermediary then the cost which is indirectly paid to the distributor gets reduced. Please note that in regular plans distributors gets compensated through trail commission ranges between 0.5% - 1% of asset under their code, which is not there in direct plans.Just keep in mind that if you are not buying directly from mutual funds website, then you are paying something extra. And when the platform through which you invest is provided by bank or a broker than be aware that this is equivalent to buying through a distributor and are not being invested in directs plans.Direct plans are meant for those who know how to create a suitable investment portfolio which fits best into the risk profile and also helps in achieving the financial goals comfortably. You don’t have to pass any exam and prove that you have knowledge to invest in mutual funds, just go to respective company’s office personally or online, and invest. All risk and return will be of yours only.The other way is to take help of SEBI registered investment advisors and let them devise a financial plan for you and come up with their advice on investment products. Depending on the service offering of the advisor you may take a onetime advice only or you can engage the adviser for ongoing services and ask to keep reviewing, and monitor the investments on your behalf and keep rebalancing the asset allocation where and when required. So we can say that the entry load has been substituted by the lump sum financial plan writing fee. Unlike earlier where the load is for buying mutual funds only, this financial planning fee would not only include the advice on buying mutual funds, but detailed investment plan, advice on taxes, estate, loans, insurance, retirement and other goals. And the trail payment which otherwise you would have been paying through high expenses in mutual funds is replaced by the ongoing advisory fee. The cost may or may not be less than the regular plans, but here you can keep direct control and check on the advisory and also are free to move your portfolio to some other adviser if you are not getting satisfactory value.Thus now you can take the benefit of reduced cost structure and make arrangements to pay directly to the advisor. These days with the free flow of information available over internet, through social and mass media, to save advisors cost, many investors started feeling that making and managing investments is an easy task and thus prefer to do it themselves. Well, if you understand the investments space well, you are disciplined enough to stick to your plan and you have all the time in this world to keep monitoring, reviewing and rebalancing the portfolio as per the plan devised then there’s no harm in doing it yourself. Otherwise just like self-medication, self-planning can be dangerous for your financial health.Everyone loves to pay least possible; in fact something free is always welcome. I can understand the pain of paying, but payment of fees to the advisor should not stop you from asking the professional financial planning and investment advisory services. Going direct through financial planning route is a wonderful combination. Paying directly to advisor lets you keep the control in your hand and you can review the planners’ services time by time and use them for your benefit. Manikaran is a member of The Financial Planners’ Guild , India (FPGI). FPGI is an association of Practicing Certified Financial Planners to create awareness about Financial Planning among the public, promote professional excellence and ensure high quality practice standards.