Introduction

There is a rising demand for skilled financial planners across the country. Given the complexities in the area of financial planning, it can be hard for the individual investors to handle. Hence choosing the right finance professional is essential.

Before we try to find an answer to the question, let us understand what is financial planning?

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Background

  1. We are all living in a world where availability of money/cash or accessibility to money/cash is what determines the level of luxury one enjoys in life. To be in position to have sufficient money one has to be productively employed or engaged profitably, be it as an employee or as self employed. It is possible for a person to work only upto a certain age as productivity tends to come down as the age progresses. The normal productive years can be said to be in a range between 23 – 60 years. Beyond 60, a person will have to create income streams from corpus created from his earlier savings (during the productive phase of life) to serve for the entire lifetime post retirement.
  2. Maslow‘s hierarchy of needs model postulates that every human being looks to fulfill firstly the physiological needs (food/clothing/shelter) followed by safety needs (job security/social security). Once these basic needs (physiological and safety) are met, individuals need to secure a standing in society in the form of love/belongingness followed by esteem (Recognition/wealth). These four needs are categorized as deficiency needs. Once the four needs are met, man will like to work in a self motivated manner without requiring directions. We will be concerned in financial planning with fulfilling the first four needs as they have a financial connotation in the sense that everyone will have to create income resources to meet these needs as long as one lives.

Element of Financial Planning

What the above discussion boils down to is that man will have desires/wants continuously throughout his/her life. To meet these desires/needs (also referred to as Goals) he/she will have to arrange the finances through ‘Income Generation in excess of his expenses’ either from occupation or savings/investments. An organized approach for creation of necessary finances to meet the financial goals can be broadly referred to as “Financial Planning”.

Financial planning can be broken up into three elements

  1. Identifying life cycle goals of a person and allocating monetary values to these goals.
  2. Estimating, as to when these goals will materialize and the finance required for satisfying these goals at the material time in future.
  3. Strategising and preparing a detailed plan of investment to have the calculated finances in hand at the material time in future, depicted pictorially below:-

 

Financial Planning Process- Role of The Investment Planner

IDENTIFYING LIFE GOALS WITH MONETARY ORIENTATION

LIST THE GOALS
PRIORITISE THE GOALS

ESTIMATING HOW MUCH IS REQUIRED FOR EACH GOAL

WHEN REQUIRED
ESTIMATING SURPLUSSES AND THE RETURN REQUIRED IF THE SAME IS SAVED TO MEET THE GOALS

STRATEGISING FOR INVESTING SURPLUSSES IN AVENUES SUITABLE FOR THE INVESTOR

 

ASSESSING RISK TOLERANCE AND MATCHING THE SAME WITH RISK PROFILE OF INSTRUMENTS SELECTED
CREATING AN ASSET ALLOCATION IN TUNE WITH THE RISK REWARD POTENTIAL TO MEET THE LIFE GOALS. LOW PRIORITY GOALS MAY BE MODIFIED OR CANCELLED

To become a financial planner, skills and knowledge of financial planning is a must. In order to undertake professional advisory services one needs to be registered with SEBI under Securities Exchange Board of India (Investment Advisers) Regulation 2013.

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Investment Advisor Regulation: – Who Can Become A Financial Planner?

The narrative above indicates that a financial planner will require certain skill sets like grounding in understanding the area of financial management, risk management, accounting , managerial economics, business management, security markets and of course computing skills to enable estimation of how much will one need and when, so that one’s financial goals are comfortably met.

Accordingly SEBI has laid down guidelines and regulations stipulating, the minimum educational qualification, experience, certifications and capital required as eligibility requirement for registering under the regulation for conducting the business of investment advisory.

Herein below is an extract highlighting the eligibility criteria and the process for registering with SEBI as an investment advisor.

Who can Apply for “SEBI Registered Investment Advisor” (RIA)

  • Individual
  • Partnership Firm
  • LLP
  • Company

Certified Financial Planner Eligibility Criteria

1. Education:

An individual IA or a principal officer of a non-individual IA or a person associated with investment advice should have the following minimum qualification, at all times:

(a) A professional qualification or postgraduate degree or post graduate diploma (which shall be of minimum two years in duration) in finance, accountancy, business management, commerce, economics, capital market, banking, insurance or actuarial science from a university or an institution recognized by the Central Government or any State Government or a recognized foreign university or institution or association;    or

(b) a professional qualification by completing a Post Graduate Program in the Securities Market (Investment Advisory) from NISM of a duration not less than one year; or

(c) a professional qualification by obtaining a CFA Charter from the CFA Institute.

2. Experience:

An individual IA or a Principal Officer of a non-individual IA must have an experience of at least five years in activities relating to advice in financial products or securities or fund or asset or portfolio management.

However, a person associated with Investment Advice must have an experience of at least two years in activities relating to advice in financial products or securities or fund or asset or portfolio management.

3. Certification:

An individual IA or a principal officer of a non-individual IA or a person associated with investment advice should have a certificate on financial planning or fund or asset or portfolio or investment advisory services from: (a) NISM; or (b) any other organization or institution including any recognized stock exchange in India provided such certification is accredited by NISM.

Note: A fresh NISM certification must be obtained before expiry of the validity of the certification to ensure the continuity in compliance with certification requirements. A fresh NISM certification shall not be obtained through a CPE Program.

For Example: If you have an MBA degree in Finance (2 years course) with 5 years of experience as required and take the NISM exam, you will fulfill the qualification and certification requirement. However, if you have an MBA degree in marketing (2 years course) with 5 years of experience as required, you will not fulfill the qualification and experience requirement.

4. Net Worth :

The net worth requirement is as follows:

In case of non-individual investment advisers– The net worth should not be less than INR 50 Lacs.

 In case of individual investment advisers– The net worth in the form of net tangible assets should not be less than INR 5 Lacs.

*Net worth means the aggregate value of paid up share capital plus free reserves (excluding reserves created out of revaluation) reduced by the aggregate value of accumulated losses, deferred expenditure not written off, including miscellaneous expenses not written off.

The net worth certificate shall be obtained by a Chartered Accountant and shall be attached to the form while making an application with SEBI.

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5. Adequate Infrastructure:

You should ensure to have an adequate infrastructure which shall include office space, office equipment, furniture and fixtures, communication facilities, research capacity, research software for undertaking investment advisory services.

6. Application and Fee Structure

Once you are sure that you meet the above criteria, you can proceed with making an application with SEBI for IA.

However, before proceeding you are required to take in-principle approval from BASL Once BASL sends you an approval email requesting you to proceed with filing of application with SEBI, you can start the process.(  BASL full form is  (BSE Administration and supervision ltd)). All RIA persons wanting to become an RIA have to obtain membership of BASL. The membership is renewable every year .( Please send membership requests on bseasl.membership@bseasl.com )

For registering one will require to login to https://siportal.sebi.gov.in/intermediary/index.html and complete the initial application process only then you will be able to proceed with the application with SEBI. All the details mentioned in Form A are required to be provided along with all the necessary documents as attachments.

Note: In order to grant the registration certificate under the IA Regulations, SEBI might want the applicant to furnish further information or clarification on the submitted documents.

Fee Structure for the application with SEBI: Upon SEBI being fully satisfied with your application, will intimate you to make the payment for BASL membership (the fee structure for BASL membership is available on the link for BASL given earlier). One will have to pay an application fee and registration fees to SEBI.. SEBI on receiving internal approval from BASL on receipt of fees, will issue you the SEBI IA License. BASL on the other hand will issue you the certificate of membership.

The Current Fee Structure is As Under:

S.NO

SEBI Application Fee

SEBI Registration Fee

BASL Annual membership fee (for a block of 3 years)

Type

1`Rs 2000Rs 3000Rs 6000 (Rs 5400 for renewal)INDIVIDUALS AND FIRMS
2Rs 10000Rs 15000Rs 300000 (Rs 297000 for renewal)FOR LLP AND CORPORATES

Choice of Certification

The regulation requires even academically qualified people to have a recognized certification to undertake professionally the business of a financial planner. The options available are CWM, CFP,&  NISM XA AND XB.  While possessing any of the certifications may fulfill the eligibility norms, the efficacy of the certification is important to ensure that the planner serves the client in a trustworthy and efficient manner. The choice of the certification should be dictated by the contents of the programme.

The CWM Certification covers in detail, the psychological (behavioral) aspects of clients, in depth coverage of fundamental and technical analysis for investment, customer relationship management aspects and risk profiling in contrast to the peripheral dealing of these subjects in other certifications. The CWM course offered by AAFM also equips a person in handling the MHNI /HNI segment of people much better than  others.

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The CWM course is in 2 levels and a period of 6 months may be enough for completing the course. AAFM (American Academy of Financial Management (India) provides academic support by providing e learning modules and support by arranging online  classes by industry experts. Special efforts are also taken to solve doubts of the students on an ongoing basis.

These qualitative aspects of CWM may help the planner to have sufficient knowledge and also develop the soft skill orientation required to succeed in the venture of investment advisory. Even if one does not want to become a professional advisor, the course (CWM) may be useful learning to manage one’s own money.

For any queries you may call the helpline numbers of AAFM.

Website: www.aafmindia.co.in

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