But then, life has always been full of struggles for Prasad, who is a differently-abled person—he was afflicted with polio in his childhood and has had to depend on a wheelchair for his mobility since. The challenges , however, never deterred him. He now manages the finances of about 26 clients with assets under advisory (AUA) of about ₹10 crore.
Prasad, who started his financial career as an insurance agent selling endowment plans and later became a mutual fund distributor, has just one regret: The market regulator, Securities and Exchange Board of India (Sebi), has not done enough to raise public awareness about the investment advisory landscape in the country, he says. Prasad, who has been an RIA—a fee-only financial planner—since 2017, said, “if Sebi, without focussing on RIA growth, continues to concentrate on regulating the industry, it will not work in favour of either the profession or the investors in the long run.”
He believes that the lack of awareness among people, especially in smaller cities, has essentially curtailed the number of RIAs. Prasad, who runs a YouTube channel called Paisa Health in Telugu to educate people about personal finance and to acquire new clients, shares with Mint his journey as a financial advisor.
Edited excerpts from an interview.
Describe your career before you became an RIA?
I started my career as a life insurance agent in 2006 and sold endowment and money plus policies (policies that combine both investment and insurance) heavily until 2008, believing blindly what my development officers and regional sales managers said.
But soon, I realized that this is an inefficient way of investing because of the optimal returns such investments generate. What worried me was that policyholders withdrew their money at a loss after a period of three years; the surrender value of an insurance policy—the amount that is paid on cancelling the policy before its term ended—would usually be lower than the premium amounts paid if the money is withdrawn within three years of policy inception.
After spending a lot of time understanding the investing world, I realized that investing in equity is the best way to create wealth for the long-run. I became a mutual fund distributor in 2008 and started selling systematic investment plans (SIPs). During my journey as a distributor too, I witnessed my clients withdrawing money from mutual funds after 3-4 years to buy gold, or real estate, either some land or a second house, etc. Despite that, my focus— just like that of many other distributors—was on growing AUM (assets under management). The conflict of interest just somehow crept in.
I wanted to change that.
At that time, I had not done my graduation yet. I had only completed 10+2 (the equivalent of a pre-degree course). I realized that I had to offer holistic financial planning and goal-oriented investment services to clients, and for that I need to have a degree and so started studying again. I finished my graduation, completed CFP (Certified Financial Planner) course and then earned the RIA licence from Sebi in 2017.
Can you walk us through the growth in your practice?
All through my journey, it hasn’t been easy to acquire clients, even after becoming the RIA. In my first year of practice, I had no new clients. From my personal financial perspective too, it was depressing as 80% of my income was dependent on offering advice to a single family.
I couldn’t even retain my existing clients (who were part of the distribution model and paid commissions in the form of earning lower returns) as they refused to pay fees under the advisory model. They couldn’t understand the difference between regular plans and direct plans in mutual funds. Oddly enough, even educated clients were not willing to sign an investor advisory agreement, though it protects their own interests.
I started a YouTube channel called ‘Paisa Health’ in Telugu to highlight the importance of financial planning. Most of my current clients are those who reached out to me after watching my content on YouTube.
Currently, I have 26 active clients. While lack of financial awareness among investors including high-net-worth individuals is a key issue in attracting new clients in a tier-II city, I believe that the regulator is also not doing enough to create awareness about RIA services. And it reflects in the miniscule growth in number of RIAs in Andhra Pradesh in the last 10 years.
How do you go about providing financial planning services to your clients?
I follow a six-pronged strategy: client engagement, data gathering, data analysis, preparation of financial planning, implementation of the plan,and review of the plan once a year. It takes about a week for me to get started with the financial planning of a client.
I take risk profiling seriously. Thanks to Sebi’s risk profiling guidelines, advisers have been very cautious about this aspect before recommending an investment product.
What has been your proudest memory of serving a client?
I have a client who is self-employed and has been with me for two years now. Neither him nor his family members had any financial discipline. They had zero savings despite earning for 20 years before coming to me. I spent a lot of time to make him understand the importance of savings. He accepted the financial plan I suggested and implemented it 100%. In two years, the client was able to save ₹30 lakh and the family is well protected with appropriate insurance coverage now. He always showers his gratitude upon me.
Is there something that you recommended in good faith but have not been happy with?
When I recommended equity mutual funds as a mutual fund distributor 15 years back, I did not follow the risk profiling procedure for my SIP clients. If I look back and think about it, I regret that a lot.
During my RIA practice, I recommended a few of the Franklin Templeton funds that were taking exposure to high-risk bonds. But I have learnt my lessons now.
What is the hardest part of being an adviser?
It is very hard to manage client behaviour. They forget the communication about their risk ability and get very disappointed when markets do not do well.
A few expect superior returns to be generated from their investments after consulting a RIA. It’s hard to manage clients with higher return expectations. Further, in small cities, acquiring and retaining a client, too, is very hard.
Do you take your own advice?
Yes, I take my own advice. Based on that assessment, I found that it will be a huge risk to my finances if I was to solely depend on the RIA practise in my city. I started doing a small business as a second source of income.
What’s the single most important reform that you think is necessary for the RIA rules?
Sebi must promote awareness about the RIA services. When a medical camp is conducted at colleges or schools, etc, a qualified doctor is invited and not a medical shop owner. Similarly, when events on financial market awareness are organized, RIAs must be given preference over others to talk about the importance of financial planning and how to go about investing.
Also, the education and the net worth requirements to be eligible for a RIA have increased in the last few years. Sebi has mandated that RIAs have to clear the NISM (National Institute of Securities Markets) exams every three years. This is a tough rule. I am hoping that a refreshment course is introduced instead of insisting that we sit for the exams every few years.
The time and money that an RIA has to spend to acquire a client , while adhering to Sebi’s compliance measures, is also another challenge.
I strongly believe that if Sebi, without focussing on RIA growth, continues to regulate the industry, it does not work in favour of either the RIA profession or the investors in the long run. A growth in RIA profession implies better safety of investors, as they help clients take right investment decisions at the right time.