IFAs are ready to be called as agents rather than advisors, finds Pallabika after speaking to a few IFAs
A few IFAs feel that the new regulations mentioned by SEBI would improve the advisory standards while other feel that it will lead to decrease in their revenue generation which would lead to a lot of exits.
SEBI has floated a concept paper on regulation of investment advisors; you can read here : Should I be a Financial Adviser or an Agent – How to decide?
Many IFAs feel that if these regulations are implemented, then it would lead to decrease in revenue generation of the mutual fund as well as distributor community.
“The norms in the concept paper will only promote agents and not advisors. If the regulation is implemented it would lead to decline of IFAs. Already most of the distributors have exited after the ban of the entry load and if such regulations are implemented we would see more exits,” said Suresh Sadagopan of Ladder7 Financial Advisories.
On the other hand, Sumeet Vaid argues that this regulation will give advisors more professional recognition and will help the investors to distinguish between distributors and advisors. “I feel the regulations would benefit the investors and will not allow any individual to carry on the activity of offering investment advice unless he is registered as an investment advisor.”
Distributors play a dual role as the agent of both the investor and the financial product manufacturer, getting paid from both ends. According to the concept paper, such divided loyalty is not in the best interest of stakeholders and results in a situation where the distributor is loyal only to himself; churning investors' portfolios and squeezing more commission from the manufacturer.
Most of them are ready to be called as agents rather than advisors because they find it difficult to charge a fee to clients. “Most of the distributors would be happy to be called as agents although they might be good advisors. This is because in India it is difficult to charge a fee for financial advisory, “said an established advisor.
The IFAs also revealed that a few norms like maintaining voice record and documents of conversation with the clients is impractical and would increase their costs.“The regulations would upgrade the advisory standards but it will increase our expenses as well. Maintaining voice records of clients is not practical and is time consuming. However, the regulations would also provide legal sanctity to advisors,” said Shifali Satsangee of Funds Vedaa.
Also, IFAs do not agree with the qualification mentioned by SEBI for advisors. Jayant Vidwans, one of the founding members & President of SOFP wants CFP to be included. “SEBI wants to segregate between advisors and agents which is a good step. But it is considering MBA, CA as qualification for advisors and not CFP which is a specialized course for financial advisors,” said Vidwans.
Others question the relevance of these qualifications. “A lot of my friends are CAs but they are not aware of the various financial instruments that will give good returns. Even a lot of qualified CAs and MBAs who are insurance agents are only well versed with LIC, “said Raj Parekh (name changed), IFA.
H K Chugh, an IFA from Kolkata agrees. “I have an experience of investment advisory for more than eight years but I am neither a CA nor a MBA does that mean I can not now act as advisor? My clients are happy with my investment suggestions, “argues Chugh.
Overall, quite a few IFAs are unhappy with the proposals mentioned in the concept paper. Many are planning to operate under two ARN numbers – one for agents and another for advisor so that they can satisfy the regulator and generate good business for themselves. They also feel that the new regulations should be implemented across all financial advisory industry and not just for mutual fund advisors.
