Financial planners stay away from registration with Sebi

Only 49 register with Sebi so far,many feel distribution business may take a hit.

New Delhi | Published: January 5, 2014 1:25 am

Eleven months since the Securities and Exchange Board of India (Sebi) came out with its investment adviser regulations,the markets regulator has managed to get just 49 investment advisers registered with itself while another 20 are in the process of doing so,out of the several thousands that are eligible.

Factors such as higher regulatory requirements,compliance,fee model of remuneration not picking up and their distribution business at stake,are putting off the planners who see little merit in registering themselves.

Apart from clear lack of enthusiasm to get registered,those going ahead with the registration have clearly decided against doing so at the cost of their distribution business,which they are transferring to a firm registered in an alternate name — that of wife,relative or a partner.

While the regulations permitted those certified by the National Institute of Securities Markets (NISM) or by institutes accredited to NISM to register as investment advisers,Sebi relaxed the norm for existing advisers who could register first and get the certification within two years.

That too,has not been attractive enough.

When asked if Sebi was disappointed with the numbers,a Sebi official,on conditions of anonymity,said,“For now,people may be looking to work as distributors but we hope that gradually they will become advisers and the numbers will grow. Some banks have also applied.”

Sebi’s investment advisory regulations make registration mandatory before offering investment advice. It also puts in an “arm’s length” condition on relationships with other businesses. That is easier said than done,which is the major hurdle in getting planners to register.

Planners are looking at ways to work around the regulations to continue with both distribution and advisory businesses. They are wary of losing their income from commissions,built over several years.

A Mumbai-based financial planner said that he has substantial trail commissions from his distribution business built over 10 years.

“My wife has cleared the NISM exam and now she can act as a distributor. I will transfer to her the entire AUM from where I receive trail and get myself registered as an investment adviser through which I will route all new businesses,” he said adding that it was impractical for Sebi to think that anyone would let go of trail income.

The other reason planners do not want to get registered is because the regulations do not provide an exclusive business model to advisers.

“Advisers have not been provided with any exclusive business model that distributors can’t do. Had they said that advisers will have access to wholesale plan or direct plan,then it would have taken off,” said the CEO of a financial services firm.

While they may have not registered as advisers,when it comes to charging investors for offering their service,planners working as distributors have devised new ways. An industry insider told The Indian Express,“They are invoicing towards ‘Services incidental for distribution,including but not limiting to courier,travel,food etc’ and thus have kept their fee intact.”

Sebi’s regulation also helps their cause as it allows mutual fund distributors,chartered accountants,insurance agents,advocates etc to provide investment advice to their clients incidental to their primary activity. “Even as a distributor I can offer advice and so I do not intend to register,” said a Delhi-based planner. “When Sebi sends a notice,I will decide whether I should create a distribution firm.”

For all the latest News Archive News, download Indian Express App

    Live Cricket Scores & Results