MF agents oppose Sebi registration norms for advisory services

A grouping of mutual fund (MF) distributors and independent financial advisors has opposed Sebi's proposed registration norms for distributors giving incidental investment advice, saying the move will adversely impact the sector and force 80-90 per cent agents out of the distribution business.
The group, United Forum, has given a representation to the capital markets watchdog in this regard.
To keep checks and balances on investment advisory services, the Securities and Exchange Board of India (Sebi) had issued a consultation paper in October proposing a overhaul of regulations governing investment advisors.
As per Sebi's proposed norms, MF distributors will not be allowed to provide incidental or basic investment advice in respect of mutual fund products. Sebi has said if distributors want to provide these services, they would need to register themselves as investment advisers.

The regulator had invited comments from stakeholders and public on the proposed norms by November 4.
Accordingly, United Forum, comprising associations like FIAI (banks and national distributors association), FIFA (IFA Association) and 43 other regional IFA associations, has opposed the proposed norms in its representation.

As per the details shared by the forum, it has told Sebi that absence of a large distribution network will see households savings once again shift to physical assets like gold and negatively impact reach of MF products across the country, especially in B15 towns (small urban centres).
"The role of distributors is very important in educating and penetrating the retail customer base, which needs help guidance and service," it has said.

It noted the norms, if implemented, would force 80-90 per cent of the distributors out of business.
"Dominant proportion of the individual distributor community, as also the banking players, may overnight shift out of the MF distribution business which includes independent financial advisors, national distributors and banks distributing financial products."
Stressing that advisory is a natural component of MF distribution, the forum said the essence of incidental advice is very important for any financial distribution activity.
"It may appear that making registration mandatory for MF distributors providing incidental advice would help Sebi regulate them better, but in reality such a measure would not only unreasonably disrupt the activities of distributors but also end up compromising financial inclusion as it would be against the interests of investors.

"It is hoped by the entire industry, including AMCs (asset management companies) such a proposal would not be implemented," the Forum added.