Mixed response to Sebi proposals on investment advisors
The Securities and Exchange Board of India’s (Sebi)’s latest proposals on selling of investment products has drawn mixed responses.
Last week, the markets regulator suggested an arm’s length distance between ‘selling' and ‘advising’. And, also asked banks and other financial institutions to separate their advisory and distribution divisions.
To address any conflict of interest, Sebi has suggested an investment adviser only do his function for a fee and not sell any mutual fund (MF) product. Those in the segment say such a move could impact big MF distributors.
“No large distributor would like to be called an adviser, given
What sector has welcomed | To continue with MF distributors | Relaxation of educational qualifications for investment advisers Reduction in fees and net worth for body corporates What it has opposed Distributors being barred from giving advice Disclosure of commissions to investors Disclaimer that distributors might not be acting in the best interest of investors | | | | the hardships associated with getting an investor to pay advisory fees,” said a Mumbaibased independent expert of the NF sector.
Sebi also has proposed to scrap the practice of usage of 'independent financial advisers' by distributors. Instead, such entities will solely be called ‘mutual fund distributors’ or MFDs. They will have to make disclosures in a prescribed form to clients, which should include the disclaimer that ‘he/she (distributor) may not be acting in the best interest of the investor’.
Sector players say such a disclaimer might hurt investor confidence.
Dhirendra Kumar, chief executive of fund tracking firm Value Research, says these proposed rules are not very practical, as they try to micro-regulate. “One of the proposals is that distributors will be forbidden from offering advice. They can describe material facts about MFs but cannot give advise. Instead, Sebi should create well-defined topics on which distributors and investors cannot have a conversation,” he recommends.