Mutual fund distributors can charge commission as well as advisory fees on products that are not regulated by SEBI, said Sandeep Parekh, founder of Finsec Law Advisors which is a leading financial sector law firm based in Mumbai.
Sandeep Parekh, who has also worked with SEBI as an Executive Director heading the Legal Affairs and Enforcement departments between 2006 and 2008, made this remark at a webinar organised by UTI MF and Cafemutual. The discussion featured Debashish Mohanty, President and Head of Sales of UTI MF.
What’s in the name!
Sandeep said that distributors cannot use words like IFA or advisor or wealth manager or money manager. Simply put, MFDs cannot use finance/wealth and advice/management together or any other synonyms of the words together. Further, he said that if MFDs use words like ‘financial consultant’ it would be in the grey area. However, if MFDs use only ‘wealth’ with their name, it may not be a problem.
Debashish Mohanty added that it is understandable why MFDs are reluctant to change their names. “However, there is nothing wrong in using MFD in front of your company’s name and distributors should not feel ashamed in calling themselves MFD. In fact, they should proudly call themselves MFD,” he added.
Role
On roles and responsibilities of MFDs, Mohanty added that MFDs can certainly do asset allocation for their clients. Sandeep added that MFDs can check investment suitability of their clients, but should refrain from using words like goal planning and financial planning as it will not be acceptable by the regulator.
“There is a very thin line here. To curb mis-selling, MFDs can check investment suitability of their clients and ask some questions to understand their risk appetite. However, the use of words like goal planning and financial planning will be less acceptable,” said Sandeep.
Key Highlights
Sandeep Parekh
- Going forward, the number of RIAs can decline because of the cumbersome compliance process
- There could be a new SRO for distributors in near future
- More compliances likely to be introduced for MFDs as well in future
- In the next 5-7 years, there will be more parity between MFDs and RIAs in terms of regulations
- NRIs can become RIAs
- SEBI can ask AMFI to delist ARN if the market regulator finds any MFD is flouting regulatory norms
Debashish Mohanty
- There is scope for bot MFDs and RIAs to grow in the MF industry
- Adopt the business model that suits you better
- Distributors should call themselves MFD proudly
- MFDs can do asset allocation and do goal planning to some extent
