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Sebi's proposals on investment advisors gets mixed response

Chandan Kishore Kant | Mumbai Jun 28, 2017 11:20 PM IST
The logo of the Securities and Exchange Board of India (SEBI) is pictured on the premises of its headquarters in Mumbai. (Photo: Reuters)

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 that selling' and 'advising' would be kept at arm's length, besides asking the banks and other financial institutions to separate their advisory and distribution divisions.

To address any conflict of interest, Sebi has suggested that an investment adviser should only perform those functions for which he/she is entitled to 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 the hardships associated with getting an investor to pay advisory fees," said a Mumbai-based 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 the 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 the 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 advice. Instead, Sebi should create well-defined topics on which distributors and investors cannot have a conversation," he recommends.

Those in the segment say big players such as banks can get away by simply creating separate divisions to sell and advise but smaller players might face issues.

On a positive note, some fund managers have hailed Sebi's proposal to continue with a model which will involve both distributors and advisors, instead of moving to an advice-only model.

"With this paper, Sebi appears to have sent a message that it wants existence of both advisers and distributors. Else, there was an impression that the regulatory was thrusting the advisory model and the sector would have to do away with distributors in due course, which could have been bad for it," said a chief executive officer for a fund house.

Sebi's move to relax the educational qualification for employees of registered investment advisers has also been welcomed by the industry, besides its other measure of slashing fees for large entities in the advisory business.

What the sector has welcomed

What it has opposed


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