SEBI has once again come out with a consultation paper which proposes a host of amendments to SEBI (Investment Advisers) Regulations 2013.
Here are the key proposals of the consultation paper:
On exemption provided to mutual fund distributors
- SEBI proposes to do away with the exemption given to mutual fund advisors in which they are allowed to charge a fee for mutual fund advisory services apart from commission.
- No one can use nomenclature like ‘independent financial advisors’ (IFAs) and ‘wealth managers’ without registering with SEBI as RIA.
- Individuals who opt to continue with the current model of commission can use the nomenclature ‘mutual fund distributor’. Such mutual fund distributors cannot recommend any product or give any advice; they can only describe product specification.
- The silver lining is that distributors who opt for RIAs can continue to get trail commissions on existing AUM. However, they have to disclose this to their clients.
- RIAs registered under individual category cannot provide execution services.
New proposed rules for MF distributors
- MF distributors can only talk about mutual fund schemes.
- Distributors cannot provide financial planning services to their investors which involves risk profiling, financial goal setting, and so on.
- Distributors will have to disclose the commission they earned.
- Distributors will have to clearly explain to their clients why a product is suitable for them.
Advice through subsidiary
- Only banks, NBFCs and body corporates can float a separate department or division to provide execution services. Such entities will now have to float a separate subsidiary to provide investment advice.
- Banks or other such firms cannot force their customers to avail execution services from them.
Relaxation on registration
- Distributors who want to float investment advisory business through body corporate licence will have to maintain a net worth of Rs10 lakh and cough up Rs10,000 as application fees and Rs1 lakh as registration fees for the initial five years. Currently, body corporates have to maintain net worth of Rs25 lakh and pay an application fees of Rs25,000 and registration fees of Rs5 lakh for five years. However, the subsequent registration fees for such RIAs would be Rs5 lakh after five years.
- For individual RIA licence, distributors will have to pay Rs5,000 as application fee and Rs10,000 as registration fee for the five years.
- In addition, distributors who are graduates can apply for body corporate RIA licence. For individual RIA licence, distributors will continue to hold post graduate degree or graduate with five years of experience in the financial services industry.
The market regulator has invited comments from the public before July 14, 2017. You can email your feedback to sebiria@sebi.gov.in or send it by post to Deputy General Manager, Investment Management Department, SEBI, SEBI Bhavan, Plot No. C4-A, G Block, BKC, Mumbai – 400051.