A significant portion of the 79,000-odd Independent financial advisers or IFAs, the foot soldiers of the Rs 7 lakh crore mutual fund industry, may stay out of the new Investment Advisers regulations notified by the Securities and Exchange Board of India (Sebi). The regulations, which broadly the follow provisions put out in a discussion paper last year, prescribe minimum educational qualifications, capital requirements, infrastructure and even personnel requirements such as compliance officers. The regulations also bar advisers from earning any remuneration other than fees earned from investors.
Intermediaries say while the move is futuristic and seeks to raise the bar on people entering the profession, onerous prescriptions that increase the cost of operations on one hand and caps revenue on the other will keep most players away.
“Bulk of them have given up the idea of becoming investment advisers for good,” Suresh Sadagopan of Ladder7 Financial Advisories. According to him, “Existing financial intermediaries such as mutual fund and insurance agents are the ones who are trying to make the transition as advisors. They might be earning 5-15% of their income from fees. The provision barring them from taking commission means it will not work for most small players.”
Dhruv Mehta, chairman, Foundation of Independent Financial Advisors (FIFA), “The regulations are prohibiting a hybrid model. They are saying you can have a fee-only model or commission-only model. That is something which could have been left for the investor and advisor to decide. Sebi is prescribing the ways to do business and revenue model to adopt.”
The regulations exempt intermediaries registered with Association of Mutual Funds of India (AMFI) from registration as investment adviser. At the end of September, 2012, there were 86,240 AMFI registration number holders, of which 79,639 were individual ARN holders and 6,601 were corporate ARN holders. Besides there are 45,932 corporate employees registered with AMFI under corporate ARN holders.
“Advisors can’t take commission. But, there is no bar on distributors taking fees. So, we will remain a distributor,” said Gajendra Kothari of Etica Wealth Management. He added that the networth requirements of Rs 1 lakh for individuals and Rs 25 lakh for corporate entities are making it unviable.
And then, there is the requirement of a post graduate degree or post graduate diploma for new entrants. Pankaj Mathpal, CFP & MD, Optima Money Managers, “Not every distributor can become a financial advisor going by the minimum education qualification prescribed. However, Sebi also says that a graduate with five years of experience in financial products will also qualify. Under this I expect a lot of distributors to make the cut.”