Investment advisory: Piece of advice, peace of mind

Feb 10 2014, 14:17 IST
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Sebi's regulation allows MF distributors, CAs etc to provide investment advice to their clients incidental to their primary activity. Sebi's regulation allows MF distributors, CAs etc to provide investment advice to their clients incidental to their primary activity.
SummaryA look at how Sebi is working to free investment advisory space as it tries to win over investors.

the meantime, the Insurance Regulatory and Development Authority (Irda) also took steps to rationalise the commission structure in the first year of the product sale in a bid to curb mis-selling and bring in better practices in the market.

In 2013, Sebi brought in the Investment Advisor Regulations where it laid down guidelines on who qualifies as an advisor and also drew broad contours of the rules and regulations within which they need to operate.

Sebi also invited applications for setting up Self Regulatory Organisation (SRO) for mutual fund distributors. While three organisations — Association of Mutual Funds of India, Financial Planning Standards Board, India (FPSB) and Financial Intermediaries Association of India (FIAI) have applied for forming an SRO, Sebi is yet to take a decision on appointing one of them.

Once an SRO is in place, it will bring in minimum professional standards for MF distributors, lay down rules and regulations for them along with enforcing them and also having a dispute resolution forum for investors. This will go a long way in regulating the distribution space in the mutual fund industry.

“The decision to ban entry load through was disruptive was a good decision in the long run. Sebi’s decision to define mis-selling as a fraudulent practice was also a major decision in this area as it becomes more serious and the move will curb such practices,” said V Ramesh, deputy CEO, AMFI.

The way forward

While the regulator has brought in investment advisor regulations, very few financial planners have moved forward to get themselves register as investment advisors and are rather willing to work as distributors.

Experts say that the regulator needs to bring in more clarity so that people can look forward to become an advisor.

“There is lack of clarity in the regulations and there is a lot of confusion which is stopping a lot of individuals from getting registered as advisors,” said Ramesh. While Sebi has brought in some changes to bring CFP’s directly into the investment advisory fold there are many who feel that Sebi needs to do a lot more in order to make it a success.

Sebi’s Investment advisory regulations state that no one can carry out advisory business unless registered with Sebi and also puts in a condition that adviser’s shall maintain an “arms length” relationship with all activities other than advisory. A number of investment advisors see it as a major road block as they are

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