You will have to look at all three consultation papers before sending your feedback to SEBI on the proposed amendments to the investment adviser regulations.
There has been some confusion among stakeholders if the third consultation paper has to be seen along with the first two consultation papers or the third circular overrides the other two. Experts believe that the industry will have to look at all three consultation papers before sending their feedback to SEBI.
In fact, SEBI had clarified post board meeting that the proposals in the third consultation paper are based on the feedback received from the stakeholders. SEBI feels that there is a need to prevent potential conflict of interest between advising and selling of financial products.
Here are the three key proposals:
- You can either charge a fee on financial advice or get commission on MF distribution. You will no longer be able to offer both financial advice and execution/distribution. Neither RIAs including corporates can offer any distribution/execution services through a relative or by setting up a separate company/division or entity, nor can an individual distributor offer financial advice through a relative or by setting up a separate company/division or entity.
- Mutual fund distributors (MFDs) can only explain the features of products to client by ensuring the principle of ‘appropriateness’ of products to the client.
- Mutual fund distributors will have to disclose the list of fund houses they work with and can only talk about schemes of these fund houses.
SEBI defines appropriateness as selling the best-suited product to your clients. However, SEBI has not mentioned if distributors can do asset allocation or risk profiling of their clients to ensure such a suitability.
On the role of distributors, the second consultation paper had proposed:
- MF distributors can only talk about mutual fund schemes.
- Distributors cannot provide investment advice, financial planning services such as risk profiling, financial goal setting, to their clients.
- Distributors will have to disclose the commission they earn.
- Distributors will have to clearly explain to their clients why a product is suitable for them
- Finally they have to say that the distributor may not be acting in the best interest of investors.
You can send your feedback to firstname.lastname@example.org or post to Deputy General Manager, Investment Management Department, SEBI, SEBI Bhavan, Plot No. C4-A, G Block, BKC, Mumbai – 400051 before January 23.