SEBI has floated another consultation paper to decide on ‘fee vs commission’ issue.
The market regulator said that there should be segregation between investment advice and distribution of investment products. It also mentioned that mutual fund distributors could explain the features of the products and ensure that the product is suitable for the client.
It further stated that the existing registered investment advisers who are offering distribution services through immediate relatives or through separate division will have to choose between providing investment advice or distribution before March 31, 2019.
In the earlier consultation paper, it had stated, “The investment adviser shall maintain arms-length relationship between its activities as investment adviser and distribution or execution services.”
The consultation paper has been revised based on the feedback received and to prevent the conflict of interest between advising of investment products and selling of investment products by the same entity or person.
Considering the same, SEBI Board has sought public comments on following proposals:
- There should be clear segregation between the two activities of the entity i.e. providing investment advice and distribution of the investment products/ execution of investment transactions.
- Individuals who are willing to get registered as investment advisers shall not provide any distribution services in financial products, either directly or through any of their immediate relatives. Similarly, individuals providing distribution services shall not provide advice for investing in financial product either directly or through their immediate relatives. “Immediate relative” means a spouse of a person, and includes parent, brother, sister or child of such person or of the spouse as defined under SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011.
- Banks, NBFCs, Body Corporates, LLPs and firms who are willing to get registered as investment advisers, shall not provide any distribution services in financial products, either directly or through their holding company or associate company or subsidiary company. Similarly, banks, NBFCs, body corporates, LLPs and firms providing distribution services shall not provide investment advice in financial products either directly or through their holding company or Associates Company or subsidiary company. “Associate company” of an entity means a body corporate in which the entity or its director or partner holds, either individually or collectively, more than fifteen percent of its paid-up equity share capital or partnership interest, as the case may be.
- Existing registered investment advisers who are offering distribution services through immediate relatives or through separately identifiable division or department or through holding/subsidiary/associate company shall choose among providing investment advice or the distribution services before March 31, 2019. Similarly, distributors who are offering advisory services through aforesaid modes shall also choose between distribution services and advisory services. From April 01, 2019, any person, including their immediate relatives or holding/subsidiary/associate entity, shall offer either investment advice or distribution services.
- Mutual Fund Distributors (MFDs), while distributing their mutual fund products can explain the features of products to client, and shall ensure the principle of ‘appropriateness’ of products to the client. As per the extant SEBI circulars, appropriateness is defined as selling only that product categorization that is identified as best suited for the client. As part of disclosures to clients, MFDs shall disclose the list of mutual funds they are affiliated with and that the information provided is restricted to the mutual fund products being distributed by them. However, the client may also consider other alternate products, which are not being offered by them before making investment decision.
This will be the third consultation paper on RIA regulations. Earlier, SEBI had floated two-consultation papers on October 2016 and June 2017.
You can email your feedback to sebiria@sebi.gov.in or send it by post to Deputy General Manager, Investment Management Department, SEBI, SEBI Bhavan, Plot No. C4-A, G Block, BKC, Mumbai – 400051.
Your comments should reach SEBI before January 23.
