In a development that could potentially make SEBI rethink its proposal on RIA, International Advisory Board (IAB) of SEBI has recommended that the proposed migration needs to be calibrated.
In fact, the board has advised SEBI that such a transition has to happen in tandem with other regulatory segments to have uniformity across competing products like stocks, insurance and pension. The board has said that commission and fee-based approach to investment advisory can co-exist and the transition from commission to a fee based model has to be gradual.
Further, the international board has advised SEBI to keep in mind the financial viability and business model of advisory business before implementing this transition. “Before undertaking any effective steps, SEBI may consider undertaking a study of migration to fee-based advisory model under various revenue models,” said IAB.
The board has suggested SEBI that they should first spread awareness about fee based model among investors. “Distinction between retail and sophisticated investors should be clear. There is a felt need for greater awareness among investors on cost of commission versus fees based advisory,” said IAB.
However, on commission disclosure, the board has a different view. The board has suggested SEBI that more transparency is required on distributor commission in all financial products. “The board took note of the international regulatory developments aimed at addressing inherent conflicts of interest and introduction of more transparency in relation to inducement and commissions received by financial advisers and distributors in jurisdictions like Australia, United Kingdom, USA, Canada, European Union and Singapore.”
In addition, the board has advised SEBI to promote ETF investment as they entail low investment management costs.
