The Foundation of Independent Financial Advisors (FIFA) has requested SEBI to allow MFDs time till March 31, 2021 to comply with the requirement to modify their registered names.
In a circular published on September 23, SEBI has said that from October 1 this year no person may use the nomenclature ‘Independent Financial Adviser’ or ‘IFA’ or ‘Wealth Adviser’ or such other similar names, while dealing in the distribution of securities.
In a letter to SEBI, FIFA said that the name change in case of both corporate and non-corporate MFDs have to reflect in all communications with the clients, on the website, mobile application, printed and electronic materials, business cards, sign boards etc. However, in light of the prevailing Covid-19 situation, the MFDs will face considerable hardship in complying with these requirements within the given deadline.
“In addition it remains the duty of the MFDs to ensure the clients are not inconvenienced due to these changes. As permitted by the IA Regulations, MFDs provide incidental advice to the clients. On account of an abrupt change in the names of the MFDs and removal of any reference to ‘advice’ in the name, as mandated by the IA Regulations, the clients may be confused whether the MFDs will continue to provide the incidental advice. Therefore, prior to changing the name, the MFDs are duty-bound to sensitize the clients of the reasons for such a change in name and assure the clients that the services they receive from the MFDs will not be affected in any manner. This is essential to assuage any concerns that the clients may raise and to not inconvenience them. It is not possible for the MFDs to contact all their clients and communicate these changes before the above mentioned deadline,” FIFA noted in the letter.
Introduce Flexi-Cap category
In a separate letter, FIFA also requested the market regulator to introduce a scheme category ‘Flexi-cap fund’. Further, the MFD association also submitted that existing multi-cap schemes be given the flexibility to rename themselves as flexi-cap schemes after due process and asked SEBI to extend the timeline for implementation.
Explaining the rationale for this request, FIFA noted in a letter that the share of market capitalization of the large-cap companies in the total market capitalization is at 74%, while that of the mid-cap and small-cap companies is merely around 15% and 10% respectively. In light of this data, it is not surprising for the fund managers of multi-cap schemes to allocate a large proportion of their AUM to large cap companies.
“Therefore, redefining the characteristics of a multi-cap fund at this stage would not ensure that the fund is ‘true to label’, but instead would lead to a new characterization of the fund, such that the current characteristics are in dissonance with the characteristics of the fund at the time of investment by the investors,” FIFA noted in the letter.
