FPSB India, the Association of Registered Investment Advisers (ARIA), and iFAST Financial India came together on Monday to host a discussion on SEBI's proposed regulation on Accredited Investors. The regulator recently released a consultation paper for the purpose. The discussion was moderated by Lovaii Navlakhi, MD & CEO of International Money Matters and Chairman ARIA. It had Rajesh Krishnamoorthy and Moh Hon Meng as the panelists. While Krishnamoorthy is the Country Head-India (LO) of Financial Planning Standards Boards, Hon Meng is the Co-founder of iFAST Group.
Here are the key highlights from the informative discussion.
Registered advisors, certain distributors should directly qualify
As many people in the financial business have advanced knowledge of financial instruments, they should directly get the accredited investor tags, according to Krishnamoorthy. "When you define accredited investors, registered advisors and people involved in the distribution of complex financial products... should also be treated as accredited investors," he said.
Starting point rather than a definitive criterion:
On the eligibility criteria, Krishnamoorthy said that there has to be some starting point. It can evolve later as things start to shape up, he said.
"I see this more as a starting point than a definitive criterion," he said.
Should the criteria be only linked to wealth?
Krishnamoorthy wondered if the criteria should also be linked to the investor’s understanding of the financial market. "The larger question I was trying to ask was - is there a qualitative element which connects with the risk profile of customers that can be brought in," he said.
Criteria in other countries
The quantitative criteria are similar to many countries in the world including the US and Singapore, Moh Hon Meng said.
It's mainly because it's very easy to set such criteria. I guess most regulators draw a line at 20% mark (the wealth criteria that will divide top 20% from the rest) to arrive at the criteria, he said.
Subjective criteria do not apply to AIs
Hon Meng informed the viewers that no country uses subjective criteria to determine AIs. “For AIs, there is actually less protection,” he said.
“The attitude is that if you are an AI, you have a lot of money and that you can afford to lose a part of it. We (regulator) want to make a lot of unregulated products available to you because you're sophisticated,” he added.
Interesting opportunity for India
Krishnamoorthy was of the belief that it is a great chance for India to show that by proper hand-holding, either by distributors or full-fledged financial planners, the customer can still be protected. "If that can be achieved then these things can find balance," he said.
Why the distinction between net worth and financial assets?
The distinction becomes important as there are many people who own very expensive houses but do not own much liquid assets, Hon Meng said.
Larger responsibility for financial intermediaries
“We will have a larger responsibility as financial intermediaries, be it financial planners or product distributors. At no point should we can end up having a situation where a retail investor who needs hand holding should be categorised to that extent just because there is a checklist compliance,” Krishnamoorthy said.
