Sandip Ghose, Director,
NISM talks to Cafemutual about NISM’s journey so far and how it is trying to
professionalize and set new benchmarks for intermediaries in the securities
markets.
Tells us about the journey of NISM so
far...
NISM is an extended arm of SEBI and is registered as a trust under Bombay Public Trusts Act. It.
It was set up to help develop competencies in the securities markets. It has been observed that building of cadres in securities market has not happened unlike in the case of banks. We already had a UTI Institute of Capital Markets. There was a conscious feeling that we could set up NISM which could also absorb UTI Institute of Capital Markets over a period of time.
There are 2-3 ways of creating professionals in the securities markets. One is through benchmark certificates in different areas of securities markets. They are not aspirational. The skills can be upgraded gradually.
The journey so far has been praiseworthy. In five years’ time we have developed 17 certificates which are divided into subjects of compliance, distribution, sales, risk, and currency derivatives. We offer 21 certificates out of which 16 (two of them are being developed) are mandatory.
Apart from providing benchmark certificates, NISM is doing a lot of work in spreading financial literacy.
There is a national strategy for financial education which has been announced by the Ministry of Finance. Financial Stability and Development Council (FSDC) is the monitoring body of this initiative. The subcommittee of FSDC headed by the governor of RBI has identified NISM as the institute where this policy will incubate.
A national level examination to create financial literacy for class VIII, IX and X students has been launched. A national level of survey has been launched, covering all the states and union territories. 55,000 people are participating in this survey. It is the biggest survey in the globe. We want to create awareness on banking, insurance, equity, debt, pension across the country so that policies can be designed appropriately.
What is NISM doing in the area of investor awareness?
Investor awareness is of paramount importance to us. We run a school for financial literacy and investor awareness. This is a separate school within NISM. There is two-pronged approach. One is providing financial literacy at the school and college level through a ‘pocket money’ program.
The second is through a larger level program called ‘SEBI resource person program’. NISM identifies resource persons for SEBI. These are senior lecturers at management schools or retired officers of banks. After identifying resource persons we train them for five days and label them as ‘SEBI resource persons’. They are provided with six structured presentations – starting from school to retirement planning.
The general desire of SEBI is to create one resource person for every district in the country. There are around 670 districts in the country. We have covered 50% of these districts. In the next two years, we plan to cover all the districts.
There is a larger view that retail participation in equity markets is very low. We do a lot of programs on careers in securities markets in schools and colleges. This is basically an investor education initiative which educates college students about channelizing their savings in financial instruments.
This year we are going to do a program on ‘investing and trading’ in management and engineering colleges.
What gaps do you find in the way investor awareness programs? Is it yielding the desired results?
When we were growing up we were comfortable with banks or insurance companies. But we were told to keep away from securities markets. Lot of things have changed now. To break this myth you need a focused attention to persuade people to invest in securities markets.
Currently, a majority of programs are being done at the school level. Technically, they are not investors. It’s because people find it easy to conduct programs at schools because of easy availability of infrastructure and audience. There may not be any immediate benefit out of it. We need to slightly change the focus. We need to get into areas which directly affect investors. There should be some benchmark and do’s and don’ts of investor awareness programs.
How often do you update the course material for your certificates?
The courses are updated dynamically. There is a dedicated team which tracks the developments happening in the markets and updates the study material.
Do you think that the examination course for distributors needs to be more stringent?
We want to work closely with IFAs. Professionalizing IFAs is very important. Currently, there is greater desire to sell than to advice. We are in talks with the top ten AMCs. We are telling AMCs that their advisors should undergo some sort of training. Today, advice is product based, which we have to move away from. Advice has to be product neutral. Advice has to cover all types of products. Unless distributors professionalize themselves it would be difficult to create a sustainable cadre.
The mutual fund industry has grown 15% CAGR since 1993. However, the industry has not been able to bring a committed set of people to advice on mutual funds.
We will train IFAs on how to build a fee based model. We have designed a five day training program for IFAs. IFAs should know reasonably well about all financial products. They should be aware of macro economics. The markets have developed but I’m not sure if individuals operating in the market have systematically developed themselves.
How are your courses different from those offered by private institutions?
Currently we run three programs. These are unique and don’t have too many parallels in the market. Both banks and insurance firms have a systematic cadre. People join as probationary officers, go up to the rank of general manager after which they aspire to become executive directors and finally the chairmen. There is an internal cadre of scale one to scale seven. There is a proper system.
Markets have not been able to establish this cadre system. Today, the industry recruits commerce students and MBAs. They need practical training. Our intention is to professionalize the entry level executives. We are constructing a new campus at Patalganga. There are a lot of MBA programs but there are no professional courses for securities markets. Most of our certificates are offered at an economical fee. Making profits is our last desire.
Taking up financial advisory is still not perceived as a prestigious profession...
One needs to take up financial advisory as a full time profession. Courses like accountancy, management and engineering are earned through four years of rigorous training. But you can become mutual fund advisor by passing a 2 hour examination. IFAs manage people’s hard earned money. It is a wrong concept that people are not ready to pay for advice but advisors should not play with peoples sentiments. They should not exaggerate the benefits. Advisors should develop a relationship with clients which is beyond just transactions. Service mindset is lacking. Advisors should take pride in their profession.
Do you think that the changes in regulatory framework has reduced mis-selling?
One case of mis-selling has repercussions on the entire industry. This is one the major challenges of the industry. Regulators should be proactive rather than reactive. SEBI has tried its best to be proactive. You come to know about mis-selling in advance but you don’t know in whose jurisdiction it falls. There is no mechanism to check mis-selling. Most of the mis-selling happens with people who are actually knowledgeable. The problem is also with investors. They don’t have control on their greed and need. Thus, they are ready to take undue risks. Today, people still fall prey to emails saying that you have won $ 40 million award from Bank of England! Behavioral finance is a major aspect of financial planning which IFAs have to embrace. Whenever a person invests he/she should be able to ask at least four questions to himself. Sometimes market participants blame regulator for being harsh but it has no choice.
Why do you think very few people have registered with SEBI as Investment Advisors?
Distribution is an easier model. For being a SEBI registered advisor one has to upgrade his/her skills. You have to be product and institution neutral. People pay a huge amount of money to astrologers but not ready to pay for financial advice. IFAs also do the same job or reading your janampatri of your finances. I’m sure a day will come when advice will be respected. The problem is in identifying whether a pharmacist can also be a doctor.
