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  • Guest Column How SEBI is killing financial inclusion

    How SEBI is killing financial inclusion

    Regulators are meant to sift through the bad apples and throw them out. Not destroy the industry.
    Vivek Law May 30, 2016

    A recent survey by a global rating agency said three out of every four adult Indians are financially illiterate. Perhaps the figure is much higher. Look at any data and it tells you how badly we Indians have been saving and investing our money.

    We have among the highest savings rate - that does not beat inflation - and among the lowest investment rate. And yet, investments into financial assets are growing and breaking new records almost every month. In other words, we are buying more financial products than before, but are, perhaps, at the same level of financial literacy than before.

    Our aspirations are rising faster than our income. It is for this reason why more and more Indians are becoming more conscious of the need to manage their money well. They are okay with wanting to seek out good financial advice even though they may not be yet ready to pay for it.

    Chances are it won't happen. Simply because, SEBI, the stock market regulator, is out to kill the financial advisory business. The regulator believes we should invest without any professional advice, least of all, from an individual adviser.

    Policies of the regulator have meant we have just about 40,000 registered individual financial advisers in a country of a billion people. This number was close to a lakh - miniscule in any case - a few years ago and has only been shrinking.

    Even of this 40,000, the active advisers would be one-third, I am told. The number of Certified Financial Planners or CFPs has been shrinking over the years, and is just a few thousand right now.

    Who is to blame?

    In its spirit of protecting investors - and rightly so - SEBI started coming down hard on the mutual fund industry a few years ago. It started cutting commissions they could pay out to distributors of its products, put stringent conditions on them in terms of how they should market their products (they are not even allowed to advertise an award they win!), and were even counting every second closely of the statutory risk warning at the end of every advertisement.

    While some of these measures were rather hare-brained, one cannot disagree with the fact that investors must get their financial products at the lowest cost possible. After SEBI's measures, a mutual fund became the lowest cost financial product if one were to exclude the government-owned National Pension Scheme, where the costs are so low that no one wants to sell it, and very few, as a result, have bought it.

    SEBI has now gone a step forward. It seems to believe that distribution is a dirty word. It has turned all business logic on its head to come to the conclusion that an industry can survive without an effective distribution chain.

    Is a distribution chain not an integral part of any industry? So, how is the mutual fund industry any different? The job of a regulator is make sure there are sound rules laid down and everyone plays by those rules. But what has SEBI done? It has been on a crusade to get everyone to buy mutual funds directly. It has said that if you buy directly from a mutual fund, you pay zero cost. Super!

    Only one problem. How many of us know what really we should be buying? Is financial planning and investment about going to a few portals, picking up the best performing schemes listed on them, and go and click? And what's more, the regulator is toying with the idea of allowing shopping portals to sell mutual funds too.

    What has always baffled me is why the mistrust? Is it because distributors have miss-sold financial products?

    Of course they have. In fact, the maximum miss-selling has taken place at the level of banks and the larger distributors, and not the individuals. What has SEBI done about it? Has it investigated and brought to book culprits engaging in such massive fraud? Sadly, the answer is no. It investigated only one case.

    In any case, it has found itself weak-kneed to take any action against banks, most of whom, have been merrily miss-selling.

    A few years ago, I was part of a three-member SEBI committee to look into miss-selling. SEBI carried out a mystery shopping exercise to identify miss-selling of mutual funds. Forget about taking any action, the report was not even made public! Unfortunately, I am not at liberty to disclose the contents of the report having been a part of it.

    If SEBI is so convinced that Independent Financial Advisers (IFA) are not trustworthy and are damaging investor interest, why does it not launch a thorough probe and back its decision with sound evidence?

    Which industry is perfect? Regulators are meant to sift through the bad apples and throw them out. Not kill an entire industry.

    The latest masterstroke by SEBI has been to hand over a Rs 100 crore-plus financial literacy budget of the mutual fund industry away from them to their association, AMFI (Association of Mutual Funs in India).

    Over the past 15 years, Indian mutual funds have spent a lot of money in promoting financial literacy through various outreach programmes, both on the ground and through the media. Again, there were some bad apples who were carrying out a sham by running investor camps with three or four attendees.

    Why did SEBI not penalise them? Instead, it has just taken away a large sum of money, and chances are all it will do with it is a series of advertising campaigns. Is that going to make us financially literate?

    If India is to progress, its citizens need to be financially literate. We need an army of at least 10 million men and women out there who take up financial advisory as a career that is worth their while. A career that provides them a livelihood. And respect. Not one where systematically their income is cut from under their feet and they have no respect.

    If there is one thing SEBI needs to do, it is this: Create a system where individuals would want to become financial advisers. Use the funds at its disposal to educate and empower the youth to become credible distributors and advisers.

    Encourage investors to value advice and not fritter away their money clicking away on transaction platforms without knowing the ABCs of investing. Else, the next survey by the ratings agency will paint an even bleaker picture.

    Vivek Law is the co-founder & editor-in-chief, Investonomix. The views expressed in this article are solely of the author and do not necessarily reflect the views of Cafemutual.

    This article was first published on
    http://www.dailyo.in/

     

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    24 Comments
    harish kumar gupta · 7 years ago `
    right said
    Pawan sharma · 7 years ago `
    Absolutely right
    prabhu · 7 years ago `
    Many people are trying to bell the cat. but it appears that according to SEBI there is no difference in buying a product and mutual fund online. I think Mutual funds will be left only for institutions after few years. All the best SEBI. Such a step was not expected from a person who has worked for many years with Indias largest selling force and who knows the pulse of the market.
    Shifali Satsangee · 7 years ago `
    Mr. Law, I couldn't agree more with you on the above.
    Dweepesh · 7 years ago `
    Very bold presentation . SEBI is a government body . Can we approach government ? Killing of a industry is a serious concerns.
    Dipak Doshi · 7 years ago `
    SEBI is misguiding public & media on total business generated by Ifas by contradicting AMFI data. It is unfair & harsh by sebi chief to compare MF investment with that of e-commerce. It is bent on killing Ifas to save real culprits of Indian like bank etc. who r actually mis-selling.
    DB DESAI · 7 years ago `
    Great Sir, great. I am sincerely grateful to you sir for writing this article in such a plain, to the point and bold language and tone directing straight to the persons and entities responsible for creating this mess and continuing to create more. You have shown exemplary courage in speaking the truth and taking on the mighty destroyer. Hope at least now they will find this eye opener of some value to ignite their through process in the right direction. The thinking behind unrealistic and unreasonable disclosures is absolutely out of context. This not regulation but kind of autocracy.
    tdevendra · 7 years ago
    only a professional can understand the nitty gritty of understanding the MF BUSINESS. while the missellers are left scot free only IFA'S are made scapegoats. while MOS has recognised the pains undergone during the volatility and the semblance it brought to the individual and to the nation at large by giving a platform for domestic fii's to thwart the volatility and gave a snare to FII'S also . is this is the way the regulator encourages the national spirit by surrendering to the unknown who by no means made a fortune due to lacunae of our top brass . some people are giving ears to certain organisations for their own .......
    Reply
    RAJESH JAIN · 7 years ago `
    absolutely correct , atleast the MF selling on the online platforms of the likes of flipkart, amazon and snapdeals which is proposed should be immediately scrapped .
    Devil's Advocate · 7 years ago `
    While the author has taken a route of confrontation for expressing his views by having a attention grabbing headline thereby directly accusing SEBI without material facts including disclosure of his own interest:

    1. He has accused SEBI of killing financial inclusion without specifying how? Financial Inclusion in simple terms means the delivery of financial services at affordable costs to sections of disadvantaged and low-income segments of society. There is no data or evidence to show that the financial advice was being provided to the weaker sections of the society or that the advice being provided to the weaker sections would stop now on account of the SEBI directive.

    2. SEBI has just tried to enhance the transparency levels through measures, which may or may not have been ideal and can be debated, but to put a false allegation on SEBI of killing financial inclusion is outrageous.

    3. The author has failed to disclose his own conflict of interest of being a Board Member of a company promoted by FPSB, and his interest in promoting the CFPs. It's surprising to note that the author is not aware of the IA Regulations, under which it is the IAs who render advice and not the CFPs. CFPs are only one amongst other eligible certifications registered under IA Regulations.

    4. His concern of dwindling numbers of CFPs only highlights his own conflict of interest as SEBI has nothing to do with it since its a Private Certification profiting only a few/select club. In addition, there are no known Investor Education programmes/activities undertaken by FPSB over the years which get restricted by dwindling number of CFPs.

    5. He also has not highlighted his own interest (of his organization) in seeking grants from Investor Education funds from mutual fund companies for conducting financial literacy programs which may get jeopardized on account of significant portion of it getting transferred to AMFI. It'll surely not be a cakewalk to get grants through AMFI without doing the desired work, maybe that could be a larger concern.

    Overall, one should understand a difference between criticizing a few policies of a regulator and a blanket criticism of the regulator. Further, there should have been a clear material disclosure of interest. The author seems to be more concerned about the number of CFPs rather than the number of IAs (which are regulated by SEBI, unlike CFPs which are overseen by FPSB-a private certification body).
    prashant · 7 years ago
    you seem to be a babu from SEBI my friend. Off course you have been hurt by the article. The moot point is simple, when DIRECT plans have been introduced by the regulator, why is there a need to go into a witch hunt against the distributors? Anyone who does not want to go via distributor can go direct now! Why the witch hunt? Is the regulator i.e SEBI so pathetic, so desperate that they have now taken it upon themselves to uproot the distributors? I find not his point of view, but rather yours outrageous.
    Reply
    Pinaki Kundu · 7 years ago `
    I am really eager to know what our Association is doing. Last 18th may they have met SEBI. but no communication received from cafemutual regarding the outcome of it or I have overlooked. Can any one share the same?Can any body share what is the obstacles being considered by our associations to take the help of the law to stop this?
    Pinaki Kundu · 7 years ago `
    Can any body please enlighten me why SEBI is not scrapping brokers in share market and allowing investors to invest directly through stock exchange? It is only for my knowledge updation.
    Arijit Shah · 7 years ago `
    Completely Agree, SEBI is actually killing the financial inclusion..... In 2010, MF Industry were having 4.8 Investor Account Folios, after so much of market growth, still the Industry is struggling hard to cross this much Investor Folios even till now...

    On one side, our honorable PM Narendra Modi are trying hard to get FDI for the country, against that known Foreign Fund Houses are leaving/left India mainly due to regulatory issues eg JP Morgan, Fidelity, Goldman Sachs, Nomura, Pine Bridge, Deutsche etc...

    Our honorable PM Modi, is focusing on Skill-India & Enterpreneurship, against that SEBI is trying ot kick of over 1 Lacs IFA (Skilled workers) out of profession...
    rajesh sharma · 7 years ago `
    True picture, very relevant article.
    sandeep · 7 years ago `
    are U listening mr Sinha.its voice of every IFA.
    No one is coming to make career in MF & common man feel fear to invest because of your every day changing regulation.
    Palani Dhamodar · 7 years ago `
    One should have courage like MR. Law, We really appreciate your Understanding of IFA's Important of MF Business, SEBI closed its eyes and ears very long back.
    R Vasagan Arasu · 7 years ago `
    Very fine article, exposing the misdeeds of the regulator.
    Pradeep Pardeshi · 7 years ago `
    Thanks sir for this Great article in favor of IFA
    C R Gopinathan Nair · 7 years ago `
    There are many IFA associations in India. They have been trying to withdraw the unfair diktat of SEBI to disclose brokerages paid to distributors in account statements. And also publish salaries of officials drawing above 6 lakhs. But all the efforts are in vain. I think it is appropriate to start choosing other forms of protest
    Shivkumar Kalra · 7 years ago `
    Main culprit is not Sebi. Main culprit is Raghuram Rajan. To save papi banks he is not reducing interest rates as it should do. In his first speech on appointment as RBI governer, he promised to bring interest at all time low. Now he is playing politics with government and wanting one more term for him to bring interest rate lower. He knows very well, when interest rates go lower, his salary will also decrease.
    ekta thaker · 7 years ago `
    There are so many investment avenues , I guess maximum percentage of investors are not even aware about some products and facilities. There is no need of launching new products , for example PPF , EPF is already there then what is the need of introducing another retirement product NPS , when already EPF is eligible to invest in market, then why NPS . People are so confused where to put money. And more over they are busy in their professional life and personal life that they don't even look into their investment. And when the need arise , they are lost what to do , which investment to liquidate for which contingeny, and above that paying a fee to Advisors from your hard earned money.
    ekta thaker CFPcm · 7 years ago `
    FPSB India is doing nothing to promote CFP certificants only keeping seminar isn't enough . Ideally it should be like there should be only one profession for one category of services. FPSB needs to talk with SEBI and make it compulsory that if anyone wants to be in advisory , needs only one certification. In that case it can be any course, instead of doing AMFI, IRDA, NISM and getting license from SEBI. How a normal public will come to know whom to trust. Make only one certificate mandatory for this field.
    prashant · 7 years ago `
    Extremely well written article. Mutual Fund industry has been taken to the gallows by the babus at SEBI. This process started in 2006 and is still continuing unabated! On the other side, Insurance agents have ruled the roost, Real Estate companies have looted the people! But a genuine, low cost product like Mutual fund, which only the distributors were taking to people for a meagre average trail of 0.5% post tax, has been brutalized again and again by the babus. Friends, for a change there is a government which perhaps has the sensibility to listen! I have been writing senior BJP leaders including Mr Jaitley. I am sharing the email id's for all of you, please WRITE TO THEM. Tell them that babus at SEBI are not only finishing the distributors, they will also irreparably damage the mutual fund industry. USA cant be copied in India by closing one's eyes! Email ID - president@bjp.org, ajaitley@sansad.nic.in, mosfinance@nic.in, dr.mahesh@sansad.nic.in. The moot point is, when Direct plans have been made available, how can this kind of regulatory terrorism be unleashed on the industry?
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