Look at Australia, emerging economies to regulate Indian planners

Based on its long standing experience with financial planning regulation, and the maturity it has gained as a result of this experience, Australia is an obvious choice for inspiration, where pricing of financial products is not regulated, but transparency of pricing is. The features and functionality of products are less regulated than the simplification of disclosure documents, so that investors better understand the key features of the products, and how much they are paying and to whom. But since India does not have a superannuation or pension system like Australia8217;s, an Asian or an 8216;emerging markets8217; country should be the second choice, to bring more relevance to India8217;s own current stage of development.

I believe that there are three key areas which should be included in development of future regulations:

A distinction should be made between those who only sell products and those who provide financial advice 8212; both should be allowed, based on the recognition that the two are different, and need to be treated differently. An investor engages a financial planner to obtain financial advice, which is usually concerned with an analysis of the current situation and how best to meet a number of short- and long-term financial goals and aspirations 8212; the Statement of Advice is central to this process. On the other hand, a product seller simply explains the features and functionalities of the products at hand and is concerned with just the sale of these products. Investors have a need for both 8212; not all investors want to go through the process of financial planning before making an investment, and not all investors may desire, or need to, make an investment immediately after they have obtained financial advice.

There should be a convergence for certification of those who only sell products and those who provide financial advice. Those who sell insurance need to be certified and regulated by IRDA. Those who sell mutual funds need to be certified and regulated by Amfi. Comprehensive financial planning includes both. So, a streamlined and unified system of certification will need to be put into place to promote best practices in future 8212; the solution will need to be practical and not try to solve the 8220;unified regulator8221; issue, which is complex and may take a long time to solve. The CFP qualification is comprehensive and world class, and goes far beyond certification requirements laid down by IRDA/Amfi. One practical solution could be that a CFP should be allowed to sell both insurance and mutual funds without the need for IRDA/Amfi certification.

The use of technology should be included in financial planning regulation. The need to provide financial planning services at an affordable cost, the need for low cost geographical penetration beyond the major metros, the need to meet the ever increasing regulatory requirements such as KYC know your customer norms, then need to provide consistency of the financial planning experience across small and large organisations across different geographies, and the need to maintain records for regulatory purposes all make it impossible to function without technology.

Recognition of this need and providing a broad framework for essential features will go a long way towards providing a solid foundation for best practice in the future, ensuring relevance in the emerging business environment and ease of on-going regulatory monitoring and compliance.

The author is CEO and managing director, OptiMix