Speaking at the Mint MF Conclave recently in Mumbai, SEBI’s whole time director G Mahalingam said that the market regulator is taking cues from the advisory landscape in developed markets to prepare its draft RIA regulations for India.
SEBI had put out a RIA consultative paper a few months back which proposed segregating advisory and distribution services. The proposals barred investment advisers from selling any products. Most notably, the proposal bars mutual fund distributors from offering any investment advice.
“We are closely studying the advisory practices in other jurisdictions. UK has come out with a report on the fee versus commission impact. They have also put out clearly what has been the consequence of the kind of guidelines they have come out with. We are closely looking at it. We are seeing what will best fit Indian circumstances when we come up with fee versus commission proposals,” said Mahalingam.
In UK, advisers, unless they elect only to offer basic advice, are banned from receiving commission payments from fund houses. A study conducted in UK found that the implementation of Retail Distribution Review (RDR) does not appear to have discouraged consumers from interacting with the distributors.
Advisory reforms, including in the area of sales practices and professional standards, have already been implemented in developed markets like UK and Australia. For instance, the use of contests to motivate sales of funds and to compensate advisers (either monetarily or through awards) for selling particular funds was outlawed under Future of Financial Advice (FOFA) rules which came into force in July 2013 in Australia.
These regulations place a fiduciary standard on advisers, requiring advisers to place investors’ interests ahead of their own. The Australian Securities and Investments Commission has declared that the term ‘independently owned’ can be used only by financial planners and planning firms. Australia has also enhanced the professional standards required to become advisers. For instance, from 1 January 2019, financial advisers in Australia must hold a Bachelors degree or more, pass an industry benchmark exam and undertake at least one year of professional work/training.
