Say ideas amount to impractical micro-managing, which would ensure dearth of people filling this role.
The draft regulation on investment advisors issued by the Securities and Exchange Board of India (Sebi) has been opposed vehemently by many. Open for comment till October 31, it has been called impractical and prepared in disregard of ground realities, among other criticism from advisors.
The Sebi paper proposes, among other things, a self-regulatory organisation (SRO) for advisors. Sebi also wants to make educational qualifications such as chartered accountancy and an MBA in finance mandatory.
“If it is going to be an SRO, why should Sebi lay down the ground rules? Let the SRO decide if it wants to charge fees or not and how,” said R Balakrishnan, a Chennai-based independent advisor.
“Amfi (Association of Mutual Funds in India) is a trade body and Sebi has been trying to push it into (becoming) a law-making body, without much success. If asset management companies can be regulated on what they pay the agent, why superimpose another body?” he asked.
Dhirendra Swarup, chairman, Financial Planning Standards Board, said the SRO should not be an industry body like Amfi, since it could give room for allegations of vested interests and favouritism. “The SRO should be an objective institution, which does not have any interest in the business. It should, typically, be a Section-25 company.” Section 25 of the Companies Act allows registration, with limited liability, of a company formed for a specifically useful object, with all profits to be directed towards that end.
The regulations also seek to create a clear distinction between an agent and an advisor. Mutual fund agents earn trail fee from asset managers as a percentage of the assets under management they have contributed. The draft regulation bars the advisor from receiving any commission from the manufacturers of the products. Advisors say this will end the agent-community’s inclination to upgrade into the advisory model.
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“The idea is utopian; it is not going to happen,” said Suresh Sadagopan of Ladder 7 Financial Advisories. He says such a change will block the transition process. “Advisors cannot emerge out of a void. If they suddenly bring out a distinction between agents and advisors, nobody will want to migrate to the advisory model, for fear of losing trail income,” Sadagopan added.
Experts also say the regulation should allow ample time for a transition from the present. While Sadagopan said the regulator should allow at least three years, Swarup said the industry should be allowed between 18 months to three years. “It should not be done abruptly, like the entry load ban.” Swarup said.
The requirement for a CA or MBA as a minimum qualification is also contested by experts. Swarup of FPSB said, “We have suggested that they must include Certified Financial Planner (CFP) as an eligible qualification. This is more suited for personal finance than courses like CA or MBA.”
There is also discontent over an additional regulatory burden over mutual funds, which are already comprehensively regulated. The draft expressly exempts insurance brokers, stock brokers, media commentators/columnists and advocates from compulsory registration. “When Sebi has no locus standi over the insurance seller, the PPF seller, the Post Office savings seller, why is it targeting the mutual fund agent? The regulation talks about the goose and gander but the only one affected is the mutual fund agent,” said Balakrishnan.
All these three experts named here say they’ve sent elaborate comments on the set of issues to Sebi.