In an hour-long interaction, Elaine E Bedel, chairperson, Financial Planning Standards Board (FPSB), USA, and president, Bedel Financial Consulting, tells Sai Prasan of FE about the financial market and investment instruments available in US, the existing regulatory mechanism to monitor them, and what lessons India can draw from the US experience in this regard. Ms Bedel was in Mumbai this month to address a global conference of CFPs on wealth management.
What is the need of the Certified Financial Planners for the investors
The CFPs can guide investors on their investment plans and wealth management. They can manage the wealth of the investors and tell investors where to invest and how to invest. They can fore-warn investors about the possible risks. The financial investors need this service most when the market is bearish for better guidance on how to wriggle out of the crisis.
Financial planning is a very well-developed profession in the US. What lessons India can take from the financial planners of US
There are 49,000 CFPs in US. The Indian financial market is emerging. There is huge potential to grow. India can leapfrog in this field by taking help from CFPs of the US.
What is the investment pattern in the US
Youth till the age of 35-40 years prefer to keep away some money to manage their expenses for three or four months. And, they pump the rest of the available money into the equity market as it gives good returns of 11-12%. However, senior citizens prefer to invest in government bonds, as they offer safe return of 3-4%. US investors prefer to invest in corporate bonds based on ratings. Low-rated corporate bonds offer good returns compared to better rated bonds. However, the risk involved is higher in low-rated bonds.
How effective is the US regulatory mechanism with respect to financial products
Each state in the US has a commissioners office to monitor the various schemes offered by insurance companies and mutual funds (MFs) in the US. The financial players are asked to adhere to a certain set of standards, failing which they would be asked to merge with any other company or sell the entity.
Moreover, the enforcement of Sarbanes Oxley Act, 2002 has also deterred financial players from committing any fraud with investors. It has motivated financial players to follow corporate laws. And guilty officials are punished for any kind of misconduct and non-compliance of corporate governance.
Were there any scams in the US financial market in the recent past
The mutual fund scandal took place in 2003-04 which was resolved and certain norms like debarring trading after market hours were introduced. The regulatory intervention has streamlined the mutual fund industry, which is very big in US.
There is lot of debate on problems related to the management of pension funds. How is the state tackling this issue
Yes, there is a new phenomenon emerging in the US that companies like United Airlines and General Motors Delphi were unable to contribute to their employees pension funds.
Employees unions use pressure tactics to pressurise management to hike their salaries. This puts lot of financial burden on the companies, which weakens them. These companies are unable to fulfill their obligations towards pension due to their weak financial positions.
What is the federal government doing to deal with this problem
The state is trying to strengthen the Pension Guarantee Corporation (PGC) set up in 1974. The Pension Guarantee Corporation pays a certain portion of the pension in case the company fails to pay the same to employees. Companies are expected to contribute a minimum premium to the PGC every year.