SEBI has floated consultation paper for amending the SEBI (Investment Advisers) Regulations for the third time.
The paper states 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.
We talked to a few experts to get their views on the same. Most of them are of the view that advisors may shift to distribution, as pure fee-based advisory is not financially rewarding.
Jimmy Patel, CEO, Quantum MF
The best is part of the consultation paper is the proposal to create level playing field between individual RIAs and corporate RIAs like banks. Both of them either charge a fee or distribute mutual funds, which is segregation in the true sense.
Another big move is that mutual fund distributors will have to ensure the principle of appropriateness of products to the clients. In a sense, mutual fund distributors would become evangelizers of mutual funds with this development.
Vishal Dhawan, Plan Ahead Wealth Advisors
It will be a challenge for a lot of investors who may prefer that the advice is delivered by a particular advisor and the execution through a separate division of the same company. Now investors will be forced to look for different entities. It will be hard for investors who need handholding both in advisory as well as execution stage. The number of people who require this sort of handholding far exceeds do-it-yourself investors who do not need a distributor.
Going forward, businesses have to realign to ensure that they remain within the law. Both distribution and advisory firms will have to change their business models to comply with the law.
Suresh Sadagopan, Ladder7 Financial Advisories
From the consultation paper, it looks like SEBI has made up its mind to segregate advisory and distribution businesses.
With this, I think many people may be surrendering their RIA licenses and go to distribution model as this new development may not work for everyone.
The direction in which SEBI is thinking is right. Advisory and distribution should be separate although it may be uncomfortable for most of us today. We have to look for the customer’s viewpoint. It will be beneficial for the investors.
We will really to wait and watch on how it develops further.
Srikanth Meenakshi, FundsIndia.com
My initial reaction to the consultation paper was how SEBI could infringe on the sovereign right of a person to pursue a profession just because his or her spouse or sibling is in the other business.
Secondly, the consultation paper seems to have ignored technological advances such as robo advisory. When it comes to robo-advisory, distribution and advisory are intertwined. If a subsidiary cannot be in the advisory business and can only check for appropriateness of the product then the whole industry of robo advisory will fail to function from a distribution standpoint.
Thirdly, the clause to ensure appropriateness of products is very vague. How can you define appropriateness without learning about the client, without talking and understanding about the needs, profile and long terms goals of the client? If you start doing this, it will organically come into the realm of advice. Determining appropriateness is infeasible if not impossible.
Distributors have to refashion the way they provide council to their clients.
We will need more clarity on what is the course of action that we can follow. Unless we have clarity on some of the issues, we will not know how our businesses will evolve.
Kavitha Menon, Probitus Wealth
A vast majority of investment advisors have a separate distribution firm under the name of their parents or spouses. I think it is going to be a big problem for them.
Advisory business is not profitable and most of the advisors are struggling to make a mark. Hence, I think if the regulation is implemented this way then RIAs may shut down advisory business and shift to distribution.
I think this regulation is too early for individual advisors as customers are slowly moving from distributors to advisors. SEBI should implement it on the banks and big firms rather than small wealth management firms.
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