Going up the down escalator

What would you say to a taxi driver who follows traffic rules when the light breaks down and the cop is missing? Unreal. He does not exist. ...

What would you say to a taxi driver who follows traffic rules when the light breaks down and the cop is missing? Unreal. He does not exist. But that is exactly what a small bunch of people are trying to do in the financial sector 8212; set standards, in a free-for-all market, that hopefully will be emulated by the rest of the industry. Meet the Certified Financial Planner CFP who is trying to ride the down escalator up.

At the first international conference of the Financial Planning Standards Board FPSB India in Mumbai last week, the buzz was unmistakable. Over 800 people turned up at a hall that could hold 550. Chiefs of mutual funds, banks, insurance companies, distribution houses, international speakers, budding planners, wannabe planners were all there.

Says Noel Maye, CEO of the Denver, US-based FPSB: 8216;8216;This is a phenomenal turnout. Even better is the fact that the capital market regulator is here.8217;8217;

M. Damodaran was there because he probably sees merit in a nascent organisation that is trying to set standards in an industry replicating the Wild West. India has a peculiar market situation where product manufacturers like insurance companies and mutual funds are fairly well-regulated, but the distributor, the agent or the advisor the direct interface with the customer in under no regulatory control, apart from clearing a farcical entry-level exam for selling mutual funds and insurance. Anybody can put a financial advisor board outside his home and begin practice.

nbsp;	Why India needs financial planners

		nbsp;	8226; Indian wealth management market at 10 billion 8226; Market to double every two years 8226; Financial wealth of mass affluent individuals grew at 17.2 a year in 1998-2003 8226; Number of high net worth individuals in 3 million plus category grew 20.6 a year over 1998-03 8226; Mass affluent population to grow at 10.4 a year in 2003-08	nbsp;

This has resulted in the retail investor getting a raw deal.

Commission-seeking agents push products that earn them higher commissions rather than products that solve financial problems of individuals. Cases of the retired being sold sector funds or insurance when there is no need are rampant. Recently, top ranking banks have been caught with their fingers in the mutual fund churn scam, where they rotated the money invested in new fund offers to take advantage of the 4-5 per cent commissions given on these products.

This is where a Certified Financial Planner hopes to make a difference. Affiliated to an internationally-known and respected organisation, the nodal FPSB, the Indian CFP is certified by FPSB India, which in turn, is licensed by the nodal international organisation.

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The 161 CFPs in India have completed a rigorous requirement of experience, education and examination to get this designation. They need to adhere to a code of ethics that binds them into putting the interests of the client before their own, of disclosing fees, costs and commissions upfront.

FPSB India and the CFPs hope they will soon set standards in this industry. The challenge, of course, remains to stick to these standards themselves.