For India’s troubles with financial advisors, UK has some advice

• Improve the current standards of professionalism in the advisory and selling space,

• Find more cost-effective ways of making advice available to a wider range of consumers, and

• Improve consumer understanding of what they are getting for their money.

“Tackling the root causes of the problems within the retail investment market is a challenging and complex issue,” said Clive Briault, managing director (retail markets), FSA, adding that this was not “something that can be solved overnight”.

To implement these ideas, the paper seeks to divide the regulated investment advice market into two — professional financial planning and advisory services, and primary advice. The former will deal with the holistic picture of financial planning involving “most highly qualified advisers”. Their remuneration structure will depend upon their qualifications. The most highly qualified could negotiate “their remuneration directly with customers and could call themselves independent”, the paper suggests.

For the lesser qualified, commission form of remuneration and a stricter regulation would apply. They will also not be able to call themselves “independent”. This, according to FSA, “would provide regulatory incentives to all firms to operate with higher standards”.

The other set would comprise the “primary advisor’, giving straightforward advice on basic and simple products.

India, which is trying to come to grips with distribution regulation, is no different and is looking at a similar bifurcation – between advisor and seller. While advisors will work like financial doctors chalking out a regime for investors, agents and brokers will work like financial chemists and will provide what the doctor prescribes. The viability of such a bifurcation is expected to come out in a paper presented by the Ministry of Finance in a week’s time.