The popular myths about investment advisers that need to be corrected

The popular myths about investment advisers that need to be corrected

Market regulator Sebi tightened regulations for registered investment advisers (RIAs) to ensure that only non-conflicted advisers give investment advice. It barred wealth managers (distributors) from offering any sort of advice. These regulations did not find favour wealth managers, who make anywhere between 1% and 5% commission on investment products. An adviser, however, may only get a small percentage of that as advisory fees.

Myth: Advisers do not have access to quality products.

Reality: Nothing can be far from the truth! Since advisers can source products from the whole industry without any bias, they actually cover a much larger part of the product landscape as compared to individual wealth managers. Besides, many wealth managers do not recommend products offered by competing managers thereby disallowing quality products to be part of the portfolio. Advisers, though, can use products from any asset manager as long as the product fits the client’s needs.

Myth: Advisers are very slow.

Reality: Most broking houses want you to trade as much as possible as they earn transactional brokerages. Some wealth managers keep clients ‘excited’ by showing active stock trades and feed them short-term news. Thus, clients assume that more active the portfolio, the better it is! Lastly, some managers have product targets and so churn the portfolios to earn that extra commission. Advisers take time to plan the portfolio according to the expectations and needs of the family and this financial planning does not need to get altered very frequently.

Myth: Clients do not wish to pay fees

Reality: Clients have become more knowledgeable over time and are okay with paying fees if they get relevant and quality advice. Most of the clients are not even aware that the large commissions earned by the distributors are ultimately sourced from client portfolios. While a 1-2% commission from a regular portfolio every year may look nominal, try working that for large ultra-high-net-worth individuals (UHNI) portfolios and compound it over 10 years or so!

Myth: Advisers have smaller teams and hence inferior research capabilities

Reality: This is often propagated by bulge-bracket institutions. The reality is that since advisers do not have any internal products to package and create presentations for, they do not require a large product team. Also, since most advisers are not into any equity broking, etc., they do not require a team of analysts. Advisers select the best managers for the job rather than trying to ‘in-house’ everything.

Myth: Wealth managers make more money for their clients

Reality: Advisers do not attempt to create traders out of their clients. Their focus is on structuring the most optimum portfolio, choose the best managers for each asset class and also keep a close watch on valuations, interest rate movements and the all-important risk mitigation part.

Myth: Clients do not mind if wealth managers make large commissions

Reality: In a majority cases, clients do not even know that the large commissions are earned from their own portfolio. It may be a different scenario when clients realize this.

Finally, there is one myth about advisers: All advisers are the same

We wish it were true. Some advisers find ways to make extra income. The biggest loophole in the regulation is that an adviser can always add products developed in-house and earn a large management fee (anywhere between 1% and 2.5%), along with profit share (approximately 20% of the return, if the return is higher than a minimum hurdle, etc.) The in-house products are usually in the shape of alternative investment funds (AIFs), fund-of-funds, some exclusive international products etc.

Munish Randev is founder and chief executive , Cervin Family Office & Advisors.

This was originally published in Mint on 13 June 2023

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Cervin Family Office & Advisors Pvt. Ltd.

    • WeWork, Oberoi Commerz II,
      Mohan Gokhale Road,
      Goregaon-East,
      Mumbai 400063, Maharashtra,
      INDIA

Engage With Us

Nearest SEBI Office

    • Securities and Exchange Board of India
      G Block, Near Bank of India, Plot No. C 4-A, G Block Rd,
      Bandra Kurla Complex, Bandra East, Mumbai 400051

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Cervin Family Office & Advisors Pvt. Ltd.

    • CIN Number : U74999MH2019PTC324434
    • SEBI Investment Advisor Registration : INA000015385
    • Type of Registration : Corporate
    • Validity : Perpetual
    • Principal officer : Mr Rohit Karkera

Complaint Status (January 2024)

    • Beginning of the month : 0
    • Received during the month : 0
    • Resolved during the month : 0
    • Pending at the end of the month : 0
    • Reasons for pendency : NA

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