SEBI may take cues from global practices in the advisory business before finalizing the RIA regulations.
The market regulator has been reportedly exploring global advisory practices to understand the implication of the proposed RIA regulations in India. In fact, the regulator has asked one of the associations of investment professionals to prepare a report on global trends on advisory business, said two sources aware of the development.
This is in wake of SEBI’s consultation paper on investment advisor in which it has proposed to segregate fee-based advisors and distributors who receive commission from AMCs.
Last month, SEBI Chief Ajay Tyagi said that the market regulator is open to receiving new ideas from all stakeholders on the consultation paper on investment advisors. The SEBI Chief said that the proposals are under consideration and nothing has been finalised yet. “Nothing has been finalised on the proposals that the market regulator has made on the consultation paper on investment advisors. I request all stakeholders to kindly give their valuable feedback before the stipulated date,” he said.
A Morningstar report published on June 2015 says that US-based fund houses follow the practice of paying commission to advisors. “In the U.S., the practice of compensating advisory firms for shelf space for particular funds is allowed with moderate regulation or oversight, but disclosure is required. The practice of using sales contests and accelerating volume bonuses to motivate general sales of funds is allowed with little regulation or oversight. While Registered Investment Advisors in the U.S. are held to fiduciary standards that highlight the needs of investors, mutual funds can also be sold by licensed brokers who are held to lower minimum fiduciary standards,” says the report.
However, last year, the Department of Labor (DoL) in USA had mandated all advisors irrespective of revenue model to act in fiduciary capacity for retirement products. Simply put, advisors can either charge a fee or get commission from fund houses but they have to make sure that they act in the best interests of their clients.
