Individual MFDs can continue to do goal planning and risk profiling of their clients to some extent, feel Babu Krishnamoorthy, President of IFA Galaxy and Suresh Sadagopan, Founding Member of Association of Registered Investment Advisor (ARIA).
This was discussed at the panel discussion conducted by Union Mutual Fund and Cafemutual on ‘MFD and RIAs: How the new rules impact you’ in which Rajesh Krishnamoorthy, Vice Chairman at iFast India participated along with Babu and Suresh.
Babu added that his interpretation of the circular is that individual MFDs can continue to do goal planning and risk profiling of their clients, as without it they would not be able to justify appropriateness of recommended products. Further, he added that individual MFDs can continue to distribute PMS, insurance or any other financial products as long as they abide to basic ethics of the profession and do not charge any fees for these products.
Suresh also feels that MFDs can do goal planning to some extent to ensure that the product they sell is appropriate.
However, Rajesh has a different opinion. He said that MFDs cannot offer goal planning services to their clients as SEBI norms say that no person other than RIAs can benefit from financial advice commercially or non-commercially.
On the nomenclature of MFDs, the panel agreed that mutual fund distributors cannot use words like IFA, Individual Financial Intermediaries (IFIs) or wealth managers.
Rajesh said that MFDs who have CFP certificate cannot call themselves ‘financial planners’ as this would mean that they are transgressing into RIA’s identity.
Rajesh feels MFDs should double check the name of their company and if they still have a doubt if they are in line with the SEBI regulations, they can write to SEBI to get a clarification. He advised MFDs to take conservative approach to comply with the new regulations and restrain from using words like ‘wealth’ or ‘independent financial distributor’ on their ARN name or entity name.
On financial planning, Suresh said that the current regulations stop individual MFDs from writing a comprehensive financial plan for their clients. Only RIAs can do this for their clients. However, this does not mean MFDs will not check the need and suitability of their clients. For instance, if someone wants to invest for their child’s education, MFDs can definitely suggest financial products accordingly and this is no different than goal planning.
“What SEBI is saying is you cannot charge fees if you are a distributor and you cannot recommend products that offer you commission if you are an RIA,” Suresh said.
Other key highlights
- MFDs must do risk profiling
- MFDs are not allowed to do financial planning voluntarily (free of cost) as SEBI has clarified that individuals other than RIAs cannot do financial planning for commercial or non-commercial benefits
- Be mindful of choosing your name. It is better to be conservative and avoid using words like wealth, consultancy etc.
- MFD community should not use words like independent financial distributors (IFDs) or independent financial intermediaries (IFI)
- There is no regulation that prevents MFDs from distributing other financial products like insurance, PMS and so on
- RIAs should ensure that they do not get consideration from other financial products where direct option is not available
- Professional qualifications like CFP to become RIA is valid only if it is active or renewed timely
- MFDs and RIAs can collaborate with each other to offer both execution and advisory services
