FPSB India comments on SEBI's Proposals to amend IA Regulations

By SiliconIndia   |   Monday, January 29, 2018
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Financial Planning Standards Board India (FPSB India) appreciates SEBI’s Third Consultation Paper on the amendments to the SEBI (Investment Advisers) Regulations, 2013 (“IA Regulations”), but with a note of caution.

FPSB India’s broad suggestions are on the premise that while there should be a distinction and separation between the activities of advice and distribution to prevent conflict of interest, however suitable disclosures of all conflicts of interest regarding the dual functions of Advisory Practice and Distribution Business should suffice. This would be in the best interests of financial consumers rather than an absolute segregation of advice and distribution. This would essentially be in sync with the broad recommendations (vide Clause 102: Dealing with conflict of interests) made by the Financial Sector Legislative Reforms Commission (FSLRC) as well.

Furthermore, a complete segregation of advice and distribution would hardly be feasible, especially in individual category. The proposal no. 5 which requires Mutual Fund Distributors to ensure the principle of “appropriateness” is a testimony to this predicament of the proposed segregation, given that in order to ensure such a thing a distributor will have to know about the client and his/her goals, needs, profile etc., which essentially forms the basis of investment advice.

According to FPSB India’s recommendations, the purpose of the outlines by SEBI is indeed commendable; however, in the present form it may lead to possible detrimental consequences for the financial consumers. This is on account of the fact that currently, in India, financial consumers are unlikely to go to two (2) completely distinct entities for advice and products. Mr. Ranjeet S. Mudholkar, Vice Chairman and CEO, FPSB India opines, “…a suitable validation by virtue of a qualified survey from the financial consumers should be sought on whether they would like to approach separate entities/individuals to get advice and then to execute transactions.” He further states that financial consumers in India need a lot of handholding at every stage viz. both for advice and execution, and complexity and cost consideration may tilt their financial behavior to the execution side without seeking professional investment advice.

The requirement that completely independent entities should provide advice and distribution separately is likely to excessively impact the Financial Planning industry including the practices of the Registered Investment Advisers (RIAs), thus impeding its growth in India.

In conclusion, SEBI’s recent proposals to amend the IA Regulations is a step forward, and with some modifications it would go a long way in changing the way investors could access personal finance advice from those who are competent to offer the same.

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