In an interview with Value Research, SEBI Chief UK Sinha has re-emphasized that acting as both – distributor and advisor is not acceptable to SEBI.
Sinha has said, “The regulatory thinking is that in the practical sense if it is permitted that the same outfit can function both as an advisor and a distributor, that will not work. The same entity might claim that it is advising some and distributing to others, but in terms of actual conversations that happen between the entity and the client it will be very difficult for anybody to monitor, either during the conversation or post the event. There could be some fudging. So we are very clear that in the same outfit, in the same entity, you cannot have both. We are very clear about that.”
“The question is: is the model going to be successful. Is it viable? My feeling is that the SEBI needs to be a little more enforcement oriented because the suspicion is that people are still not following the required discipline and they are doing both (advising and distributing),” Sinha added.
A few months back, Sinha had expressed his displeasure regarding this issue at the CII Mutual Fund Summit. When Cafemutual had asked if SEBI would take stricter action against the erring intermediaries, the SEBI chief had said, “SEBI’s idea is to create awareness about the requirement of law and create an environment so that the rules are being followed. The whole idea behind SEBI RIA regulation was that we should move towards a system where the customer is paying to advisor for the services being rendered. Many countries have started this practice. The best example is UK or Australia. We have found that there are agencies which are distributing products and are also advising. It may be happening in smaller towns in a bigger manner. This is not acceptable to SEBI in the long run. We would like to wait for some time. If things don’t improve then SEBI will have to take some measures. The SEBI Act is reasonably powerful in this matter to take action.”
Sinha had further said that SEBI’s team is scrutinizing the situation and will suggest measures if things don’t improve.
Ever since the SEBI RIA rules came into effect in 2013 only close to 300 entities/individuals have registered themselves as RIAs.
Recently, the Sumit Bose committee report has pitched for an advisory model where investors remunerate advisors directly.
