Ask ten people why they bought a particular insurance plan or fund, and most will say someone recommended it. Very few ask the next question: what did that person earn when I said yes?
That question is the whole case for the fiduciary standard.
Two standards, two different promises
Most financial product sellers in India work under the suitability standard. They need to show that what they recommend is broadly appropriate for your needs. Not the best option. An appropriate one. A high-commission product with a mediocre cost structure clears the bar as long as it isn’t unreasonable for you.
A fiduciary has a stricter duty. The advice must put your interest ahead of the advisor’s own, and conflicts must be avoided or disclosed. The test is not whether the product works. It is whether it was the best fit for you after weighing cost, tax, liquidity and your goals.
Think of a doctor. A good one diagnoses before prescribing. A product seller prescribes before you have finished describing the problem.
Indian households have paid for this gap for decades. Endowment plans sold as investments. ULIPs pushed for their upfront commissions. Regular plans of mutual funds recommended where a direct plan would do.
The seller was not always a villain. The incentive did the work. Pay someone more for selling product A, and product A gets sold. Say the fund that suits your goals pays the distributor 0.50% a year, while another on his shelf pays 1.0%. Guess which one gets pitched, and what reason you are given for it. Nor is this free advice. You pay for it through commissions, which is why a regular plan always returns less than the direct plan of the same scheme.
Behavioural finance has taught us that incentives bend judgement, often without the person noticing. Good intentions are not a reliable fix. The fix has to be structural.
Where do SEBI RIAs fit?
SEBI’s Investment Advisers Regulations, 2013 created that structure. A Registered Investment Adviser or SEBI RIA is paid only by the client. There are absolutely no commissions from mutual funds, insurers or any product manufacturer. Advice and distribution are kept separate, so the person advising you cannot also be selling to you. Registration comes with qualification, certification and experience requirements. And the fiduciary duty is enforceable by the regulator. That last point matters most. Plenty of financial intermediaries say they act in your interest. But only a SEBI RIA is bound to that promise.
The work also starts differently. An RIA begins with your goals, not a product: what you need, when you need it and how much risk you can actually take. The goal-based investment plan is built to make money available when life asks for it, not to beat an index.
How to choose?
- Check the advisor’s registration on SEBI’s website.
- Ask and understand how they are paid. Ask whether they, their firm or their family earn anything from the products they suggest.
- Shortlist a few advisors and talk to each. Notice the questions they ask before they recommend anything.
- Be wary of anyone who says their advice is free. Someone is paying, and it is usually you, through the product.
The best clients I have worked with asked these questions in the first meeting. A fiduciary should welcome them.
Your money deserves advice from someone whose only paycheque is the one you write.
Good investment advice is not free, and it shouldn’t be. A few right pieces of advice can offset many years of fees.