Regulator for financial planners

Sebi wants a private sector regulator to set professional standards and monitor advisors.

The Securities and Exchange Board of India (Sebi) is likely to allow a private sector self-financing regulatory organisation (RO) to act as a first-level regulator to deal with the large number of investment advisers in India, who sell products, ranging from mutual funds, insurance and personal loans, to investors across the country.

Currently, the Sebi does not register and regulate investment advisers as a separate class of intermediaries. Further, it will also be difficult to bring them directly under the Sebi as investment advisers sell products that fall under the jurisdiction of different agencies such as the Insurance Regulatory and Development Authority (insurance schemes), the Reserve Bank of India (NBFC deposits, mortgages) and the Forward Markets Commission (commodities), besides pension products, government bonds and tax consultancy, among others.

The Sebi sources said it was in favour of an independent private self-financing RO as it would also help the regulator from keeping away from the nitty-gritties relating to the day-to-day regulation of investment advisers. Further, it would also help the Sebi in playing the larger role of laying down the broader policy framework.

In the domestic market, the Financial Planning Standards Board (FPSB), is playing a similar role as envisaged by the Sebi. The FPSB serves as a professional standards setting body, guiding the development and promotion of standards for financial planning professionals. It is likely that the FPSB would emerge as a key player to act as an RO, as envisaged by the Sebi.

The FPSB, in fact, recently submitted its feedback on the Sebi proposal, viewing itself as playing the role of RO for investment advisors.

When contacted Ranjeet S Mudholkar, chief executive officer of the FPSB, said: "We see ourself as playing the role of RO. In India, there is a crying need to establish professional financial planning standards, inculcate financial literacy, and create suitable redressal mechanism for investors, so that they not only make responsible use of credit and money but also take informed financial decisions for their families and future," he said.

Globally, many leading personal financial services firms are coming together in an attempt to professionalise the business of financial planning, and setting standards of discipline. Currently, in 20 countries over 200 leading financial firms have joined hands towards this objective.

"Although financial planning in India is relatively new, India should seriously consider adopting a similar approach and direction as adopted by other countries," said the FPSB, in a paper submitted on the subject to the Sebi.

In the US, there is no separate RO for investment advisers. The work relating to regulating investment advisers is split between the Securities and Exchange Commission (SEC) and the State governments.