IFA or Independent Financial Adviser in India – Beware of them

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Many Mutual Fund Advisers or Insurance Advisers may be approaching you with a TITLE next to their name as IFA or Independent Financial Adviser in India. Let me explain to you on how much danger they are actually.

Independent Financial Adviser

Before I move further, let me share you the origination of the professional term IFA or Independent Financial Adviser. Let me copy the Wikipedia meaning of who is Independent Financial Adviser.

Independent Financial Advisers or IFAs are professionals who offer independent advice on financial matters to their clients and recommend suitable financial products from the whole of the market. The term was developed to reflect a United Kingdom (UK) regulatory position and has a specific UK meaning, although it has been adopted in other parts of the world, such as Hong Kong.

Further, the explanation is as below.

The term “Independent Financial Adviser” was coined to describe the advisers working independently for their clients rather than representing an insurance company, bank or bancassurer. At the time (1988) the UK government was introducing the polarisation regime which forced advisers to either be tied to a single insurer or product provider or to be an independent practitioner. The term is commonly used in the United Kingdom where IFAs are regulated by the Financial Conduct Authority (FCA) and must meet strict qualification and competency requirements.

Now it is clear from above sharing that IFA is the professional tagline originated in UK with proper regulation where an IFA must not be associated with any insurance company or mutual fund company. He must do the planning and charge the fee for the same.

However, Indian Mutual Fund Advisers and Insurance Agents suddenly grabbed this new fancy TAG and started to claim themselves as they are IFA or Independent Financial Advisers. They are typically associated with Mutual Fund Companies and Insurance Companies. But they tag themselves as IFA or Independent Financial Advisers.

They may not charge you as a fee upfront. However, they are earning the commission by whatever they sell to you. In such a situation how can they claim to be as an INDEPENDENT?

The sad part in India is that media and few experts call these advisers as IFA without bothering the actual meaning to it. No one bothers about regulations or at least some truthfulness when they calling themselves an INDEPENDENT FINANCIAL ADVISER.

Exactly like UK regulation, now in India SEBI came up with the RIA regulations. Where if one register himself with SEBI as an RIA (Registered Investment Adviser), he is barred to earn the commission or remuneration DIRECTLY and INDIRECTLY from Insurance Companies or Mutual Fund Companies (or whatever the product he recommended to his clients). I am one such SEBI Registered Investment Adviser, who is following the Fee-Only Module. Refer the service details at “Fee-Only Financial Planning Service“.

I am not suggesting that all SEBI RIAs are practicing the complete Fee-Only Module. There are few whose family members have an association with Insurance Companies and Mutual Fund Companies, where they advise you for OFFLINE Insurance products or they recommend you REGULAR mutual funds through their family members.

Hence, you have to be very cautious when dealing with anyone. If someone approaching you in India with the tagline to their name as he or she is IFA or Independent Financial Adviser, then upfront asks such person like how INDEPENDENT he or she is from not associating with Insurance Companies or Mutual Fund Companies.

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15 Responses

  1. Dear Sir,

    I have certain observations in this article or thought process;

    1.You are saying Insurance Agent or MF Distributor/Advisor call himself/herself as IFA and he earn commissions
    from respective companies so I do not understand “why would anybody aware about them”. Are you not painting all advisors/agents with same brush.

    I feel it would be far good if you say “BEFORE HANDLING YOUR FINANCES TO ANYBODY BE IT IFA/INSURANCE AGENT /ADVISOR OR FOR THAT MATTER CERTIFIDE FINANCIAL PLANNER(FEES ONLY) YOU SHOULD CROSS CHECK THE PERSON ,TRACK RECORD AN HIS/HER INTENTIONS” because this matters a lot.

    As many insurance agent/advisors/IFA’s helps or serve their clients much more better way than CFP’s. As our intention should be serving customer to protect all king of Asset(BODY/Health/Physical /Financial Asset) with right intent and proper knowledge.

    2.Secondly if insurance agent/advisors/IFA’s earning there commissions/revenue are they doing crime or is it illegal, I know many insurance agent/advisors/IFA’s who upfront tell customer what to expect and what not to expect ,so please do not make anyone look guilty .As you have choose to be a fee only Financial Planner than that your choice .Do not bad mouth any one sir as they are doing there job with full Integrity.

    3.So if you say WHY mis-selling happening so there are many reason for it, in which fringe elements would definitely be there in all sections , such elements would be there Fee Only Model ,but does that mean “ONLY FEE Based “MODEL is bad, definitely NO.

    We have to educate people by asking 3 questions
    1.Credibility of Person who has come to HELP /SERVE ME??
    2.Does this advisor/planner/agent understand my core needs/desire. ??
    3.Would he/she be supporting or guiding me in Good and Bad times ??

    As a customer we are looking a person who is professional friend /partner/couch who would help me with finance for my whole life.

    Address the KEY ISSUES RATHER FIRE FIGHTING AROUND THE BUSH

    1. Dear Shrikant,
      I am questioning their INDEPENDENCY when they are representative of some companies 🙂 If your so-called professional friend /partner/couch is a representative of some companies, then how can you EXPECT AN UNBIASED ADVICE???? If you still believe I am FIGHTING around the BUSH, then it is left with you to work with those professional friend /partner/couch!!

  2. Sir, very informative and true statements.
    I am a retired banker in Senior Management Grade. I had practical experience in MF and insurance products through bancassurance channel while in service.
    Can I perform as an IFA after passing the NISM Certificate exam for Invetsment Advisor Level 1. or how can I be an IFA ….

    1. Dear Asok,
      Thanks for sharing your experience. Yes, you can by passing the relevant exams in this regard. Again repeating IFA is a term not at all exist as per regulations in India. IFA is a term imported by financial middlemen from other countries 🙂

      1. is there any online reliable platform where i can acquire IFA certification? plz guide me.

    1. Hello Sir,
      IFA get commissions from the client portfolio, Mutual fund company just facilitates the transaction and it is more transparent to the client. If we follow a similar approach then we can start IFA company in India term ourselves as IFA if we don’t give any biased opinion to clients.

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