Bring advice under regulation

The short answer: nothing.

Unlike product 8216;manufacturers8217; like mutual funds and insurance companies, which are arguably well regulated one could say that with a high degree of conviction for funds where the degrees of transparency and disclosures are high, but much more needs to be done in the insurance space, the last mile in both cases still needs to be negotiated by regulators.

Yes, there is an examination-based entry barrier for agents. The agents of mutual funds have to clear an exam conducted by Association of Mutual Funds in India Amfi; the agents of insurance companies have to negotiate an IRDA-managed test. But that8217;s it.

Lying beyond agents is an even more sophisticated, and therefore more daunting, arena of financial planners. These are individuals or firms that take a client8217;s existing income and expenditure flows, track his financial goals, evaluate his risk capacity, design an insurance plan and asset allocation that suits him, plan his taxes and even draw up an inter-generational estate plan. Imagine the kind of information they collect.

Again, apart from a small degree of self-regulation through one such budding body Financial Planning Standards Boards, India, offering one such designation certified financial planner or CFP, there is no regulatory respite 8212; the worst that can happen, as in the case of chartered accountants, is a revoking of the license to practice. So, anyone can call himself a planner, advisor, consultant, manager. Prefix them with half-a-dozen financial nomenclatures 8212; retirement, investment, insurance, wealth and so on. And go about collecting, influencing, directing the monies of Indian consumers. No questions asked, none answered.

It is not as if Indian regulators have been behind their global counterparts in negotiating this last mile. In fact, it took the US Securities and Exchange Commission as late as 1976 to set up competency standards for investment advisors, and the early 1980s to begin setting up SROs self-regulating organisations for planners. Long after the birth and the maturity of mutual funds and insurance industries.

But it8217;s not merely the old and established nations but equally the young and emerging countries that are embracing regulation in this space. Two years ago, Malaysian Parliament amended its Securities Act, 1983 and made an 8216;investment advisor8217; license mandatory for all intermediaries. Curiously, the designations chosen were not government-created but industry-led 8212; CFP and Chartered Financial Consultant ChFC. Both are global brands managed by global associations, not regulators.

The financial planning profession in India is young but I believe this is going to be the 8216;next big thing8217; in financial services intermediation. It is now that we need regulation 8212; before the profession matures, builds vested interests and high stakes around it, before a full-fledged scam erupts, destroying confidence in the process. This is indeed the last mile not only in the current evolution of financial services but for regulators too.

It is this last mile that Sebi, IRDA, PFRDA and RBI have to walk. Together 8212; either through regulatory outsourcing between one another or through an entirely new Act that gets SROs to oversee advisors with regulators sitting in. This last mile is bumpy, full of booby traps and is going to face lobby pressure unseen so far. Which is going to make this the most challenging piece of financial legislation our lawmakers will have drafted.

Tailpiece: 8220;The story is still interesting, but getting expensive.8221; That8217;s the Indian equity view of a chief investment officer of one of Asia8217;s largest funds. But relax, the money isn8217;t drying. According to him, India has barely reached the investment map of the world, everyone wants a slice. Change for the positive is visible, he says, despite the noise created by the Left. He crosses his fingers.