MF Summit: Here are 5 steps to achieve SIP contribution of Rs 50,000 crore, say experts

Can SEBI Investment Adviser regulations boost the advisory profession?

SEBI recently came out with a consultation paper that addresses many of the problem areas investment advisors had highlighted. Investment Adviser (IA) Regulations, 2013, was a watershed moment when a new category of advisers, who would act in the client’s best interest, was created. The number of IAs had come down from about 1,350 or so in 2020 to about 960 now.

“Bringing down the eligibility of becoming an RIA is a good starting point,” said Suresh Sadagopan, SEBI RIA, MD & Principal Officer, Ladder7 Wealth Planners.

However, there is a new provision for part-time investment advisers. “Part time investor advisors are ill advised. Advisory is a full-time profession,” said Sadagopan. Induction of such people will dilute the quality of IAs and the standard of advice available to clients, he added.

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Bring in financial inclusion

The number of investors in mutual funds is far less than the number of demat accounts. “To retail it out from this mutual fund product, ensure it reaches out to a large majority of investors,” said Misbah Baxamusa, CEO, NJ Wealth. Investors should stay invested in the mutual fund product for 20-25 years to create wealth. “We also need to ensure that, at the distribution channel, whether it is an advisory channel or whether it is an MFD channel, there is enough motivation for that person to handhold him for a longer period,” he added. Then only we can expect an investor to make money.

“Whether you are RIA or MFD you have a role in managing the clients' wealth creation journey,” said Kulkarni. We are far short of the number of people required advising investors in their financial journey to achieve goals, he added.

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Ways to mitigate recency bias of investors

It will be a long haul to mitigate recency bias of investors, so one needs to be prepared for it. “The first thing we should do is stop ranking AMCs on assets under management and start ranking AMCs in terms of new customers added per year and publish it,” said Kulkarni. You will see a behavior change among investors.

“For an investor to avoid recency bias is to use an advisor. The advisor in turn has to be careful about mentioning the recent returns, which can be either too promising or lack lustre,” said Baxamusa, while adding that rolling returns of 5 years should be given to avoid recency bias.

"When we are publishing the returns, we don't focus on point-to-point returns. We focus on rolling returns for the longer period of 5-10 years," Baxamusa added.

Should you invest in NFOs?

“Getting a product in the category, where there is a gap is a big positive for New Fund Offers. NFOs get us new investors,” said Kulkarni.

“NFOs increase the options for investors. Some fund houses do not have a particular product in its offering basket. But we as advisors need to see whether the NFO is a right fit for the goals or not,” said Sadagopan. Mutual funds are offering a whole basket of products. Advisors are playing a financial architect and might not use all the funds and new fund offers.

"As a general rule, we avoid NFOs as there is no track record. We already know the track record of the existing funds," Sadagopan added. "Our focus is on whether we meet a client's goals over the long term. We make them invest in two-four categories and not all categories of funds."