FPSB India comments on SEBI’s Proposals to amend IA Regulations

Financial Planning Standards Board India (FPSB India) appreciates SEBI’s Third Consultation Paper on the amendments to the SEBI (Investment Advisers) Regulations, 2013 (“IA Regulations”), but with a note of caution.

FPSB India’s broad suggestions are on the premise that while there should be a distinction and separation between the activities of advice and distribution to prevent conflict of interest, however suitable disclosures of all conflicts of interest regarding the dual functions of Advisory Practice and Distribution Business should suffice. This would be in the best interests of financial consumers rather than an absolute segregation of advice and distribution. This would essentially be in sync with the broad recommendations (vide Clause 102: Dealing with conflict of interests) made by the Financial Sector Legislative Reforms Commission (FSLRC) as well.

Furthermore, a complete segregation of advice and distribution would hardly be feasible, especially in individual category. The proposal no. 5 which requires Mutual Fund Distributors to ensure the principle of “appropriateness” is a testimony to this predicament of the proposed segregation, given that in order to ensure such a thing a distributor will have to know about the client and his/her goals, needs, profile etc., which essentially forms the basis of investment advice.

According to FPSB India’s recommendations, the purpose of the outlines by SEBI is indeed commendable; however, in the present form it may lead to possible detrimental consequences for the financial consumers. This is on account of the fact that currently, in India, financial consumers are unlikely to go to two (2) completely distinct entities for advice and products. Mr. Ranjeet S. Mudholkar, Vice Chairman and CEO, FPSB India opines, “…a suitable validation by virtue of a qualified survey from the financial consumers should be sought on whether they would like to approach separate entities/individuals to get advice and then to execute transactions.” He further states that financial consumers in India need a lot of handholding at every stage viz. both for advice and execution, and complexity and cost consideration may tilt their financial behavior to the execution side without seeking professional investment advice.

The requirement that completely independent entities should provide advice and distribution separately is likely to excessively impact the Financial Planning industry including the practices of the Registered Investment Advisers (RIAs), thus impeding its growth in India.

In conclusion, SEBI’s recent proposals to amend the IA Regulations is a step forward, and with some modifications it would go a long way in changing the way investors could access personal finance advice from those who are competent to offer the same.

About Financial Planning Standards Board India (FPSB India)

Financial Planning Standards Board India (FPSB India) is a Public–Private Enterprise and a not for profit company registered under section 25 of the Companies Act, 1956. Functionally, it is a Professional Standards Setting body, a part of leading Global Confederation that proactively guides the development and promotion of standards for Financial Planning professionals to benefit and protect the public in the country. FPSB India is the first organization in the country to initiate the concept of Financial Planning and it focuses on Financial Planning, investor advisory and improvements in the distribution of the financial products with full disclosure and regulated practices. The company has been established by 44 leading financial institutions, in both public and private sector including LIC, SBI, UTI AMC, ICICI Group, Axis Bank amongst others, along with leading professionals supporting the movement. These promoting organizations span across all domains in the Financial Sector viz. Banking, Insurance (Life and Non-Life), Asset Management, Securities, Wealth Management etc. and these organizations have pledged to support the cause of Financial Planning and investor protection in their respective spheres.

The certification provided by FPSB India, the CERTIFIED FINANCIAL PLANNERCM certification (CFPCM certification), embodies a broad spectrum of topics ranging from investment, insurance and tax planning to retirement and succession planning of an individual. This helps financial advisors in understanding all aspects impacting an individual and then advising them holistically while addressing all their requirements in a well crafted Financial Plan. Through the certified professionals, we enable the citizens to have better financial security, fair protection against exigencies and enough financial resources to sustain them through their old age. More than 30,000 candidates have registered with FPSB India for the CFPCM certification Program. There are more than 40 Education Partner organizations registered in India to train the candidates under CFPCM certification Education Program. Around 5,000 of them have passed all the examinations.

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