The new regulations announced by market regulator Sebi could make life more difficult for independent financial advisors (IFAs), according to market watchers.
The guidelines mandate that the investment advisor shall not obtain any remuneration or compensation from any person other than from the client being advised. This could mean that IFAs who work as financial advisors will now have to let go of the distributor commissions that they get from AMCs. ?Those who have moved to an advisory model will now have to give up on their distributor commission altogether if the new guidelines are implemented,? said Dhruv Mehta, chairman, FIFA, a body of independent financial advisors.
?If a bank or a corporate body is allowed to act as both a distributor and an advisor, why can?t an individual or partnership firm be allowed to do that?? According to Mehta, even distributors that work on an advisory model typically earn 75% of their income through distributor commission from AMCs. The new regulations could increase the cost of business for financial advisors. ?Those charging a fee to their clients will have to shell out money to upgrade their infrastructure, record-keeping and on certification requirements as per Sebi?s needs,? said a sales executive of a large fund house. However, he added that the move may benefit the advisors in the long run as it will boost their credibility since they will now be directly regulated by Sebi.
The guidelines have also confused several industry watchers. ?Today, a bank or a national distributor acts as both distributor and advisor. Will the new guidelines make them change their business models? Will the banks, for instance, stop charging the clients to evade the guidelines and recover the amount from manufacturers instead?? asked the CEO of a small fund house.
Market participants are also awaiting clarity on the requirements relating to experience, qualification, certification and net worth/net assets to be prescribed for a person to act as an investment advisor. There is fear that individual financial planners may not be able to meet the new networth requirement.