With mutual funds getting popular among investors, the task of the Securities and Exchange Board of India (SEBI) to protect investors’ interest has gotten even tougher. The prevalence of mis-selling is very high, while the awareness among investors is gradually increasing.

On October 7, 2016, SEBI issued a consultation paper seeking public opinion on the amendments to SEBI (Investment Advisers) Regulations, 2013. It received an overwhelming response. Based on this, it recently proposed a few changes and invited public comments on the same.

The proposed changes are as follows:

Complete separation of investment advisory and distribution of financial products

Right now banks, Non-Banking Financial Companies (NBFCs), and other body corporates are allowed to offer investment advisory services through Separately Identifiable Departments or Divisions (SIDDs), under the banner of one company. SEBI has proposed this provision to be cancelled. And instead, those interested in offering investment ‘advice’ shall carve out subsidiaries within 6 months to handle this responsibility.

The rules for investment advisers who are currently offering comprehensive advice on financial planning and several financial product categories such as securities, insurance and deposits among others may also change. SEBI has proposed that these advisers must secure permission from the specific regulator and comply with the regulations of the respective regulators.

Moreover, it will be compulsory for them to register themselves as investment advisers. That being said, SEBI has clarified that advisers offering advice solely on non-securities will not be governed by SEBI (Investment Advisers) Regulations, 2013.

Distributors will not be allowed to offer incidental advice

SEBI has proposed to disallow mutual fund distributors to offer incidental investment advice. It has also suggested that they shall not be eligible to provide any advice on financial planning. However, distributors will still have to mind suitability of the product to the investors.

Before getting investors invest in a particular scheme, the distributor will have to get a form signed from the investors, wherein the distributor has to disclose…
 

• The list of mutual funds where he is a distributor
• The commission earned/ to be received
• Suitability of the product sold to the investor
• Disclaimer that he/she may not be acting in the best interest of investor

SEBI has allowed existing mutual fund distributors to change their goal posts and register as investment advisers, if they wish. In such a case, they will still be entitled to earn the trail commission on the mutual fund schemes they have distributed already. But, they can’t do any businesses as ‘distributors’ once they registered as ‘investment advisers’.

Net worth and other associated requirements to be relaxed

SEBI has proposed to relax the net worth requirement for body corporates to Rs 10 lakh from Rs 25 lakh at present. Further, it is proposed that the application fee for corporates be reduced from Rs 25,000 to Rs 10,000. However, the subsequent fee for continuing to operate as an investment adviser after 5 years, will remain unchanged at Rs 5 lakh.

There’s a downside as well…

SEBI has also proposed to relax the educational qualification and the experience requirements for the representatives and the employees of the registered investment advisers. As suggested by SEBI, the representatives and employees of investment advisers can be graduates with no experience. The existing provisions require them to be post-graduates or graduates with 5 years of experience.

PersonalFN is of the view that investors should seek advice from an experienced investment adviser/ financial planner or a financial guardian, who can manage your hand-earned money with as much care and caution as he would while managing his/her own money. Certified Financial Guardians in that sense are a symbol of trust and respect, as they follow high fiduciary standards while discharging their duty. So, find a Certified Financial Guardian in your vicinity today. Remember, every investor needs a financial guardian.

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