What is a Research Analyst? How does it differ from an Investment Advisor? Why does SEBI registration matter?
The key difference between a Research Analyst and an Investment Advisor is the ability to offer “personalized” advice. Research Analysts cannot, IAs can.
Personalized advice is based on financial planning which in turn requires deep understanding of clients financial situation, their goals, income expenses, income sources, etc. Investment Advisers hence have a higher connect with the Client. Deciding how much should one invest in Equities vs debt vs other financial instruments is a part of IA’s deliverables. IAs can also recommend stocks mutual funds and other instruments. IAs are not distributors and hence do not benefit from the actual transaction. They are allowed to charge fixed fee or fee based on the AUM. There are some recent changes in the fee structure which I am not aware of in details. (Can an IA help here?)
Research Analyst cannot offer individual personalized advice. RA’s job is to analyze and publish his/her analysis. Publishing of analysis can be in the form of research report of recommendations (model portfolio). It is an advice and hence not binding on the client to act on it. The key skill of the RA is research, it can be technical research, fundamental based research, or something like what I do i.e. quantitative research. Essentially, the RA’s make money on making this research available to their customers. Since they cannot have different research for different clients, they cannot offer individual advice.
They can however create multiple products based on their research, like different kinds of portfolios, or short term vs long term recommendations, etc. All subscribers to a certain service/product should be treated exactly same i.e. the recommendations/opinions should be circulated simultaneously.
SEBI registration is mandatory by law for both IA and RA. A SEBI registered advisor is not expected to be correct all the time, rather, he/she has the Fiduciary responsibility where they are required to put the client’s interest above everything, including their own interests.
What about Financial Planners? – Any financial planner should mandatorily be certified as an IA.