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  • MF News ‘Either charge a fee on financial advice or get commission on MF distribution’

    ‘Either charge a fee on financial advice or get commission on MF distribution’

    SEBI has proposed to do away with the exemption given to mutual fund distributors on incidental advice. Simply put, you can call yourself IFA or wealth manager only if you are a SEBI registered RIA.
    Nishant Patnaik Jun 23, 2017

    SEBI has once again come out with a consultation paper which proposes a host of amendments to SEBI (Investment Advisers) Regulations 2013.

    Here are the key proposals of the consultation paper:

    On exemption provided to mutual fund distributors

    • SEBI proposes to do away with the exemption given to mutual fund advisors in which they are allowed to charge a fee for mutual fund advisory services apart from commission.
    • No one can use nomenclature like ‘independent financial advisors’ (IFAs) and ‘wealth managers’ without registering with SEBI as RIA.
    • Individuals who opt to continue with the current model of commission can use the nomenclature ‘mutual fund distributor’. Such mutual fund distributors cannot recommend any product or give any advice; they can only describe product specification.
    • The silver lining is that distributors who opt for RIAs can continue to get trail commissions on existing AUM. However, they have to disclose this to their clients.
    • RIAs registered under individual category cannot provide execution services.

    New proposed rules for MF distributors

    • MF distributors can only talk about mutual fund schemes.
    • Distributors cannot provide financial planning services to their investors which involves risk profiling, financial goal setting, and so on.
    • Distributors will have to disclose the commission they earned.
    • Distributors will have to clearly explain to their clients why a product is suitable for them.

    Advice through subsidiary

    • Only banks, NBFCs and body corporates can float a separate department or division to provide execution services. Such entities will now have to float a separate subsidiary to provide investment advice.
    • Banks or other such firms cannot force their customers to avail execution services from them.

    Relaxation on registration

    • Distributors who want to float investment advisory business through body corporate licence will have to maintain a net worth of Rs10 lakh and cough up Rs10,000 as application fees and Rs1 lakh as registration fees for the initial five years. Currently, body corporates have to maintain net worth of Rs25 lakh and pay an application fees of Rs25,000 and registration fees of Rs5 lakh for five years. However, the subsequent registration fees for such RIAs would be Rs5 lakh after five years.
    • For individual RIA licence, distributors will have to pay Rs5,000 as application fee and Rs10,000 as registration fee for the five years.
    • In addition, distributors who are graduates can apply for body corporate RIA licence. For individual RIA licence, distributors will continue to hold post graduate degree or graduate with five years of experience in the financial services industry. 

    The market regulator has invited comments from the public before July 14, 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.

    Have a query or a doubt?
    Need a clarification or more information on an issue?
    Cafemutual welcomes all mutual fund and insurance related questions. So write in to us at newsdesk@cafemutual.com

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    26 Comments
    deepti · 6 years ago `
    Sir,
    We appreciate your concern and your steps on making the MF industry more transparent and responsible. There have been various steps taken in the past towards the same for the consumer benefit but through this entire process what i fail to understand is what is your end purpose . What is the logic of dividing the industry in IFA's and RIA's. Is it just to earn extra income year on year in name of registration fees or is it for the end users benefit. If the purpose is the former then any comments or suggestions which may come from the forum are going to fall on deaf ears and if the purpose is actually to benefit the end user, you need to screen the entire distribution channel. The process of registering IFA's and RIA's is not going to help.People with deeper pockets will immediately take dual registration as per your norms itself and continue giving advisory and distribution under separate banners - Read Banks and Big Distribution houses. Do you feel that the right advise on investments is given by the Banks. If yes,then you need to come out in the market and see the client portfolio's which have been recommended by the banks. The Capital protection schemes are sold, hybrid schemes, closed ended NFO's .. you name it and all the sales come. Rather than creating an unheavel in the entire MF industry, if you can just bring about some sanity in the way the MF's are pitched and sold in banks, i suppose you will achieve the purpose of end user protection.
    I really fail to understand the whole concept of RIA's and Distribution. I urge you to sincerely relook at this entire process. The indian investors have not graduated to a level where they will feel comfortable paying fees for each and every advise.
    Sanjay Kotak · 6 years ago
    Good thought.. We have to ensure that, this and all such similar feedback reaches to SEBI, before they finalise any such guidelines.
    Uma murali · 6 years ago
    Very nicely conveyed Deepti......well said.
    Praveen · 6 years ago
    absolutely great massage Ms Deepti...

    all the facts mentioned in your views...
    keyur shah · 6 years ago
    Sir, i just want to tell you that as per this tow factor no body can do this kind of thing because ifa and ria , is like a mind level game , sir you just think that many ifa is from small town and there is no one can understand , what is a fees? what is some kind of mutual fund, and sir this is totally push and force technique of this kind of rules , because nobody can pay fees for advice in this country , rare and few client are pay this fess, and please don't mix all culture with banking system , you and every public know that how many bank officer also know about what is mutual fund, sir this is very pathetic situation regarding mutual fund industries because this is the very fast growing industries now a days , so we need push up from your side two words ifa , not like this rules and regulation, one of there is also bothered GST, and one more rules , such a sir this is sue site of this industries as well ifa, so do something ,and do and rise more benefit for small ifa as well small city.....do favorable
    Yogesh · 6 years ago
    Very true Ms Deepti.
    Banks have been misselling and the same needs to be brought under the scanner of SEBI
    Reply
    Prashant · 6 years ago `
    This is clearly malafide intentions of SEBI to kill distribution network just and only to benefit mutual fund houses sincebthey will not have to give commissions to us since we could negotiate the commissions if we bring big business. Also in future SEBI and AMFI will for sure increase the FMC and earn any amount they want to. SEBI has to come out and show how many IFAs have missold and they have to sahre the actual reason for this kind of a regulation which is against the interest of the invrstors. SEBI has proved that thay are anti investors and pro companies.
    tdevendra · 6 years ago
    i full endorse the sentiments expressed by all and sundry. the edifice of mf industry is being built by the hardwork of IFA'S. after the built , the fruits are being enjoyed by the amcs/top distributors, bank institutions having tasted the fruit they are now throwing the seeds to destroy the fabric of ifa fraternity. this is the bane of all upcoming industry. while the rule is that only haves have a say and noes are destroyed to the core. many a budding IFA is still in the infant stage to get a decent amount , the sebi's measures are beyond measures. they are hand in glove with the top brass of amc/banking industry. the miss-selling is throwing mud on the poor ifa's while ignoring the real culprits. this way government objective of providing employment is a dream to be realized. instead of mitigating and improving the quality of providing a decent salary structure, and developing many a person with employment, the structure is a doom of many a ifa's, career. have a human face and mitigate the sufferings of pangs of employment opportunities available to a section of society .
    Reply
    Difficult venkata ramana · 6 years ago `
    I too feel, regulator has not understood the reality in distribution. had they, they would have looked at banks modus operandi of selling. Their view of distributor missell may not be right. Missell happens when there is an immediate and huge income. In long term the client would know it by the fund statement. It takes 10 yrs of work to achieve some thing meaningful in MF industry. Would a distributor risk that work for a meagre 1% commission.
    So there is not enough logic and data. Lets ask the regulator to come out with clear data and logic of these guidelines.
    We need to make them come out with this data.
    Prashant · 6 years ago `
    It is us who have done KYC thrice of all the clients. It is us who have done FATCA for all our clients. It is us who go to investors house do the risk profiling and goal setting and give the product according to both. Still we are demons and banks and brokers selling all the wtong products without following any processes are angels. Also the people who sit in fund house offices who recommend investors are who? Are they RIAs? Manufacturer selling their products directly will not have any malafide intentions? All IFAs please unite and fight this menace. Do we want a regulator who regulates companies or who works for benefitting the companies? Let them come out and explain on how are they benefitting investors? Fee will be more expensive than commission than why should it be compulsory? Even RIAs have been punished for wrong doings than why are they behind it?
    Amit · 6 years ago `
    I sincerely welcome the move of SEBI. Its already too late. Now, just hope they implement it at the earliest. If SEBI is referring to this site - PLEASE Make it a LAW in few months itself. Dont stall aorund.
    Bharat Bhushan · 6 years ago `
    "The investment adviser should should not receive commission from the product manufacturer." and then, it goes on say "Banks, NBFCs and body corporates offering investment advisory services through separately identifiable departments or divisions (SIDDs) under the existing framework shall segregate the same within a period of six months through a separate subsidiary." Capital is also a form of consideration and can be viewed as leading to conflict of interest. The subsidiary can be funded endlessly from profits arising out of MF Distribution. For true avoidance of conflict of interest, there should not be any identifiable proximity between advisory and distribution entities to the extant that even two immediate relatives should not be allowed to engage into two different segments. Only then, we will truly come to know, how many IAs can have sustainable businesses.
    B BALAJE · 6 years ago `
    SEBI everyday making rules to crush IFA 's soon.will they disclose all employees salary
    Sanjeev C. Bhatkar · 6 years ago `
    I sincerely thank Deepti , T. Devendra and Prashant for conveying their opinion immaculately as they have voiced feelings of almost all mutual fund distributors ( including myself ) who are till now taking all possible efforts to serve their Mutual Fund client-investors with zeal and enthusiasm using IFA as title - from investment planning to execution of mutual fund investment and post investment services. This latest development by SEBI of depriving mf distributors of IFA title and compelling them to become RIA is atrocious and will certainly crush Mutual Fund distributors like me who are having Insurance agency also. I strongly oppose this proposed move by SEBI. At the same time I hope that SEBI will pay
    Sanjeev C. Bhatkar · 6 years ago `
    I hope that SEBI will pay heed to concerns raised by all mf distributors like us.
    Prashant Sharma · 6 years ago `
    It's a good move. SEBI also have to take strict action against the Banker, AMC employee who is selling business to the distributor IFA .Its shame on such banker ,Amc employee and that particular IFA .SEBI must look into the matter and eradicate such corrupt people from the system.
    RAJESH BHARDWAJ · 6 years ago `
    ts good . investor aware that what we are earning ( in fact they dont care about what i earn ) and second thing mutual funds come in this country more than 22 years before and its surprising that after 22 years amfi promoting that what is mutual fund and how can invest in mutual fund. this is growth of mutual funds ?. and sebi is now trying to kill distributor slowly ( its is the only channel who give there service and advise very personally and honestly ), i am not telling that we want more brokerage, i only concern was please look humanely our side. i dont how ria work in this country where we make relation with the investor very personally .
    ram rahim · 6 years ago `
    Please stop selling MF. I also stopped. I started selling Sabji and earning good than any IFA. I routinely calles different IFAs one by one from my City and ask them many questions on investments. I pretend that I am the customer. Then I ask them about direct plan. And then said them, that "I will invest in direct plan."

    I sell Sabji and thinking to put some MFs schemes in my Tokri and sell MF also. I will sell like, "MF lelo bhai MF lelo. Aloo, Tamatar, HDFC Prudence, ICICI Top 200, BSL Balanced 95 lelo bhai. Saste lagaye hai."
    Suresh kumar · 6 years ago `
    India is India and America is America. The life style is different. Behavior is different. Attitude is different. Simply by copying their system and implementing, you can not change the mentality. It may take years together to develop the Indian investor mindset to pay sincerely the fee. Very few investors can come forward to pay the fee. And what kind of fee can we expect from an investor who does SIP of 2000/-or 3000/- or 5000/-. I think the officers are not so matured about the investor mindset and they decide the fate of all IFA or RIAs.
    J N Shah · 6 years ago `
    Sir,
    Mutual fund agents alreading paying renewal fee every three years, then why another fee imposing to small agents. If you wants to expand mutual fund business then enlarge mf agents networks without any fee.
    Delhi Ka Thug · 6 years ago `
    MF Selling Band karo bhai. Sabji Becho. Aachha lagata hai. Profits are more in Sabji. You know i also don't have to study anything. No renewal of ARN etc.


    Just sell sabji and enjoy life. Life is very easy at Sabji Tehla. Very hard when selling MFs.

    Every Galliwale are waiting for me now. And I used to say, "Sabji lelo bhai sabji. MF se sasti Sabji lelo."

    To all IFAs - "If you want my business idea, please contact me on given details."
    Rajnish Kumar Singh · 6 years ago `
    ??? ???? ?? ?? ??? ?? ???? ??? ???? ?????????? ???? ????? ?? ?? ?????? ?? ???? ???? ????? ????? ???? ?????????? ???? ????? ??? ??? ?? ??????? ??? ???? ?? ??? ?? ??? ???? ???? ???? ???????? ??? ??? ?? ?????? ??????? ?? ????????? ???? ?? ??? ??? ???? ??? ???? ???? ?? ??? ???? arn ?????? ???? ???? ?? ??? ???? self decliration ??? ???? ???? ??? ???? ??? ??? ??? ???? KYC ??? ???? ???? ?? ?? ???? ?? ???? ??????? ???? ?????????? ?? ????? ??? ??? ??? ???? ???? ???? ????? ???? ??????
    Rajnish Kumar Singh · 6 years ago `
    We are oppose this kind of new rule.
    Hemal Suthar · 6 years ago `
    This move of SEBI towards IFA is unethical as they says IFA should get clients signature on declaration. Are IFA doing any criminal activity for their clients??? Also with stating that he is not acting for the best interest of clients!! So, then how IFA would do the business?? Also IFA cannot advise clients, so if any client asks that why I am selling one fund to him, can we say that SEBI told us not to explain the product?? And last, I want to say that many young educated people like me who just stared their business who honestly working for client, educate them how to invest, where to invest and provides them proper investment information, if we dont get commission then how we will survive?? This move will reduce the MF business and young advisor like me who have no sufficient income, will divert peoples investment to some other segment which will never help investor as well. This step to stop the brokerage, declaration, no advice is totally against to IFA
    ankur singhal · 6 years ago `
    DEEPTI JI
    YOU ARE GREAT
    Yogesh Laddha · 6 years ago `
    Always Mutual Funds industries are in Observation. Why LIC's Rules are Not being Strict. After Rebate in 50% Commission. Agents are being Fully Survived.

    If there is no rebate given, the agent must be a Close Family Member of Any Govt Employee.

    Please Observe this.
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