SEBI, in its board meeting held today, has decided to float another consultation paper to decide on ‘fee vs commission’ issue.
SEBI has said that there should be segregation between investment advice and distribution of investment products. The market regulator further said that mutual fund distributors could only talk about the features of products with clients. In addition, they have to ensure that the product they sell is appropriate and suitable for the client.
In the press release, SEBI said, “Based on the feedback received from the consultation process and the meetings with various stakeholders, it was felt that there is a need to prevent the conflict of interest between advising for investing in financial products and selling of financial products. Considering the same, SEBI Board has approved the consultation paper to seek public comments on following proposals:
i) There should be clear segregation between the two activities of the entity i.e. providing investment advice and distribution of the investment products/ execution of investment transactions.
ii) Mutual Fund Distributors (MFDs), while distributing their mutual fund products can explain the features of products to client, and shall ensure the principle of ‘appropriateness’ of products to the client.”
This will be the third consultation paper on RIA regulations. Earlier, SEBI had floated two-consultation papers on October 2016 and June 2017. While the first consultation paper was put on hold due to the recommendation of International Advisory Board (IAB) of SEBI that the proposed migration (from commission model to fee based approach) needs to be calibrated, SEBI had asked CFA Institute India to prepare a report on global trends on advisory business after floating the second consultation paper.
This consultation paper will be released on SEBI website for seeking public comments soon, said SEBI.