Has it ever happened to you that you were mis-sold a financial product but you could not hold your investment adviser accountable due to lack of evidence? Losses due to wrong investment advice are not new, but financial planners or advisers often go scot-free because neither they nor their clients keep a record of the advice given or received.
　　Such informal arrangements may be a thing of the past, with the Securities and Exchange Board of India(Sebi) making it mandatory for advisers to keep a record of all ‘investment advice provided, whether written or oral’.
　　In a set of comprehensive guidelines, the markets regulator has laid emphasis on suitability of investment advice given to investors. The guidelines say that advisers should provide investment advice based on the client’s risk profile. Now, advisers will have to follow a documented process for selecting investments based on clients’ objectives and financial situation.
　　To ensure that investment advisers do not go back on their word, Sebi wants them to maintain a record of risk profiling and assessment of clients, suitability assessment of the advice, the advice provided and the rationale for the advice.
　　The records have to be maintained, duly signed and dated, in either physical or electronic form for at least five years.
　　“This (keeping record of the advice given) is a global practice and the guidelines are in the right direction,” says Surya Bhatia, certified financial planner and principal consultant, Asset Managers Private Wealth Management.
　　Sebi guidelines bar advisers from ‘entering into transactions on their own account which are contrary to the advice given to clients within 15 days of giving such advice’.
　　“If during these 15 days, the adviser feels that the situation has changed, he may do transactions on his own account contrary to his earlier advice, provided he has informed the client about the revised assessment at least 24 hours prior to entering into such transactions,” according to the guidelines.
　　The new guidelines also make it mandatory for advisers to receive proper certification from Sebi. Those already working as advisers have to receive the certification within six months of the implementation of the regulations. The certification will have a validity of five years and has to be renewed three months before expiry.
　　The objective of the guidelines on investment advisers is also to ensure that investors do not suffer due to conflict of interest arising out of advisers’ connection with the issuer of products/securities and, therefore, bars advisers from receiving any commis- sion from anyone other than the client.

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