India is on the cusp of a changing landscape wherein the investment balance is tilting from physical assets to financial assets. Already, the latter now represents over 50% of the household assets (not including primary residence). The underlying reality being that the growth and risk characteristics of the financial assets like Equity & Fixed Income are far more compelling than real estate and gold.

Despite growth of financial assets, the market is hobbled with a significant challenge. Whom does the common investor trust and turn to for sound financial and Wealth Management advice?

The common investor is led to believe that any company with a “Wealth Management” label should suit their purpose. This is where the problem lies. Broadly speaking there are three main categories of intermediaries that investors turn to for financial advice:

• Distributors of Mutual Funds
• Brokers dealing in Equities & (infrequently) Fixed Income products
• SEBI registered Investment Advisors/ Portfolio Managers (PMS)

While, the first two categories represent over 95% of the market, their expertise is limited to their domain. At the same time, SEBI limits their advisory function to their respective areas. For instance, a Mutual Fund distributor cannot offer advise on stocks and bonds. Similarly, a stock broker’s advice cannot cover investments in Mutual Funds. Indeed, these firms are not qualified to offer comprehensive lifecycle investment management services. Yet many of these entities label themselves as “Wealth Managers”.

On the other hand, Investment Advisors/PMS companies need to go through a stringent evaluation process before being certified by SEBI to offer lifecycle Investment services across a comprehensive range of investment vehicles. These firms not only look at the individual’s growth objectives, but balance these with the right risk considerations. Truly, these firms are best positioned to serve the common investor in their pursuit of advisory and Wealth Management services.

You will notice that I have used the term “common investor”, by this I am distinguishing with people that fall in the ultra high net worth bracket. People in this group are served through Private Banking and other specialized advisory firms.

With a growing economy, and inflation trending downwards financial assets have performed well for over a decade. This trend is expected to continue for the next several years. Paradoxically, this can also camouflage the true capabilities of the intermediaries. This is where investors need to exert judgment before signing up.

Positive trend in numbers is one thing, but people have the need and the right to obtain high quality advice. In fact there is no reason that the waters need to remain murky. This is a serious nomenclature issue that SEBI and the regulatory bodies need to address immediately. Hence Distributors and Brokers should only be allowed to call themselves as Distributors and Brokers respectively.

Else the interest of the common investor will continue to suffer.