It is a welcome step from SEBI that it has finally decided to regulate financial distribution system in India. I also appreciate that SEBI has also called for feedbacks and suggestions in this matter from public. My doubts and suggestions are given below for your kind consideration.
Is SEBI authorized to regulate all the financial advisors including who sells life insurance, Postal Schemes, Corporate & Banks FDs and all other financial products available in the market? My apprehension is that if you cannot regulate all the financial agents/distributors and than only penalizing mutual fund distributor is not justified. SEBIs decision to abolish entry load has resulted in reducing the strength of mf distributor to half and new guideline will further reduce one category of financial distributors, which is really discriminating and is highly objectionable.
Prima facie it looks that your decision to regulate financial distribution system is initiated so that investors at large should benefit, but it also raises doubt that your this plan will eliminate the individual IFAs from distribution system and will benefit banks and corporate agents/brokers. I strongly feel that knowingly or unknowingly you are working in the interest of banks & few national/corporate distributors. There has to be some level playing field for both individuals and corpoarates. Individual IFAs should not be ignored. You think that individuals largely do misselling but this is not true, there are much more misselling by banks and corporates, but the incidents are not noticed, because very few people raise their voices. I request you to do some enquiry on this.
Your draft also suggests in the same line, that if you want to become investment advisor than should acquire professional qualification like CA or MBA or should have atleast 10 years of experience. I want to ask you one simple question “ are CA and MBA competent enough to give advice on personal finance? The answer is big NO. CAs can give best advice on income tax planning but they are not competent enough to give advice on insurance planning, investment planning, retirement planning, which is the basic of personal financial planning. You must also be aware that practicing CAs cannot do other business/profession, as it will be treated as violation of code of conduct laid down by ICAI. Still many CAs do insurance and mutual fund business by enrolling their family members as an agent. Even ICIA may not know this or knowingly has not taken any steps. I have prepared comprehensive plans for CAs and surprisingly they are also found far away from the basics of financial planning.
You have excluded stock or sub brokers and also insurance broking service, which is again discriminating. Both stockbroker and insurance broker give advice and also sell the investment products and exemption given is not justified. You first have to regulate stock brokers as they always try that client churn their portfolio and do more trading so that they can earn more brokerages. Volume in the stock markets also says the true story of market that, there is more of day trading compared to delivery-based transactions. I strongly believe that you must start this exercise from stockbrokers, if you really want that investor’s interest be protected. You first must stop this casinos opened in every part of India.
The major problem lies at entry point only because you can easily become agents/distributors in India by passing one simple exam of AMFI or IRDA. Next day onwards they recognize themselves as advisors and start-selling products without proper knowledge of need based or goal based financial planning. If you have proper examination at entry level just like CAs, MBAs and Doctors than lot of problems can be easily avoided. Certified Financial Planner is one of such course where you study the entire basics of individual financial planning and get the knowledge of goal based planning and also understand the basic features of all the products available in India. Certified Personal Financial Advisor (CPFA) certification course launched by NISM is in the line of CFP and short version of the CFP. I request you to make mandatory to pass this exam to all class of agents/advisors including employees of manufacturers, banks & corporate, which will lead to quality advice. I request you to implement advisory module in 2-3 years time as people are also not willing to pay the fees and are also not aware of the benefits of expert advice. Instead of advising only on risk profiling, it should be future goal based and also make it mandatory to give advice in writing. This will make advisor more accountable and will take utmost care while prescribing any investment advice.
I think you have not done proper homework and are also not aware of the ground realities. I agree that quality of advice available is not good and is not up to the mark. But this is not the solution, you have to take steps to upgrade the knowledge & professional level of distributors/employees and this can be done by having tougher entry point and also continues learning process. If you implement in the present form than husband will become an advisor and wife will continue as an agent or one partner will become advisor and other will continue as an agent and will still continue to benefit from both manufacturers and clients. We are very smart in finding the ways from the systems. The solution should be full proof and not temporary.
