We’re all familiar with KYC processes, aren’t we? Whether opening a bank account or signing up for a mutual fund, you’ve been asked to submit identity and address proofs. It’s part of the “Know Your Customer” initiative—institutions gathering basic details about you.
But this isn’t a one-time activity. You’re often required to update these proofs periodically, failing which your accounts might get frozen. These steps stem from Anti-Money Laundering (AML) guidelines, ensuring that illegitimate money doesn’t infiltrate the financial system.
Now, here’s the real question: while banks and institutions want to know all about you, how much do you know about the people and organizations advising you on your finances?
You deal with bank relationship managers, stockbrokers, mutual fund distributors, and even self-proclaimed “finfluencers” on social media offering quick investment tips through catchy reels or “2-hour masterclasses.” Also, we are living in the age when even after the proper Regulations in place, every second person calls himself an Advisor. But do you stop to ask:
- Are these individuals qualified or certified to give you financial advice?
- Can you genuinely depend on them for your financial future?
- And if things go south due to poor advice, who will take responsibility for your losses?
Let’s compare this with other professions. When you visit a hospital, you’re confident that the doctor is a qualified professional. When you hire a lawyer, you know they’ve at least graduated with an LLB. But when it comes to financial advice, many people never bother to check the qualifications or regulatory registrations of the person giving them advice.
(Also Read: How to select the Right Financial Advisor for NRIs?)
Why?
Because we assume.
- If someone works at a reputed bank or brokerage, they must be qualified, right?
- If someone has a popular blog or a massive social media following, they must be a verified professional, correct?
- And if advice is free or promises high returns, what’s the harm in listening, right? (Read: The Real Cost of FREE Advice)
Unfortunately, this mindset leads many into the hands of inexperienced or unregulated individuals. You trust blindly, thinking you’re getting something for “free,” but in reality, there’s often a hidden cost.
Take fintech platforms as an example. While they’ve made investing convenient, many subtly steer you toward trading, borrowing, or high-risk options like F&O (Futures and Options), where they make money from your transactions—irrespective of whether you gain or lose.
The Hard Truth About Trading Losses
Here’s some data to consider. According to a SEBI report shared by Mint:
- 9 out of 10 individual traders in equity futures and options incurred losses, averaging ₹1.1 lakh in FY 22.
- 90% of active traders lost an average of ₹1.25 lakh in the same period.
- For those who lost money, the average loss was over 15 times the profit made by successful traders.
This isn’t to discourage investing or trading but to highlight the importance of professional guidance. Financial mistakes can cost you dearly, and that’s why knowing your advisor is as important as knowing your investments.
Beware of the “FREE” Trap
Direct mutual funds were introduced to reduce costs for knowledgeable investors and improve transparency. But many platforms now use them as bait to attract less-informed investors. They lure you in with the promise of “no cost” and then upsell high-risk products.
The result? While mutual fund investments have grown, trading volumes continue to dominate—and often to the detriment of retail investors. (Read: Want to achieve your Financial Goals? – Select Right Adviser, not Product)
So, What Should You Do?
It’s simple: Know who you’re dealing with.
- Check Credentials: If someone calls themselves an “Investment Advisor,” verify their registration with SEBI. The term “Investment Advisor” is protected by regulation, and only registered individuals or firms can use it.
- Ask Questions: Whether dealing with a mutual fund distributor, broker, or fintech platform, inquire about their qualifications, experience, and investment philosophy.
- Understand Conflicts of Interest: Free advice often comes with hidden agendas. Platforms make money when you trade or borrow, not when you succeed. (Read: MFD or RIA, who is better to take advice from?)
- Be Cautious with Finfluencers: Social media is flooded with generic financial recommendations. While some might be genuine, others are not regulated professionals. Understand the basis of their advice before acting on it.
- Prioritize Accountability: A qualified advisor doesn’t just guide you; they take responsibility for their recommendations. That’s a level of trust you won’t get from anonymous influencers or faceless platforms.
Your Financial Future is Your Responsibility
The regulator is doing its part by tightening norms and improving investor awareness. But as an investor, you need to take charge of your financial decisions. Choose advisors who are qualified, experienced, and accountable.
Remember, platforms only facilitate transactions—they don’t share your losses. So, the next time someone offers you “free advice,” think twice. A little due diligence today can save you from significant regrets tomorrow.
This article was written by Manikaran Singal for Mint Newspaper
