Govt eyes crackdown on wealth advisors

Besides RBI and Sebi,other financial sector regulators,namely commodity regulator FMC,insurance watchdog IRDA and pension fund regulator PFRDA,will also be roped in to formulate the all-encompassing wealth management guidelines.

After their initial probe into the Citibank case,banking regulator RBI and capital market watchdog Sebi have felt the need for stricter regulations for wealth management advisors,given the huge surge in the size of assets managed by them.

Although there are no official figures for it,the size of wealth management industry is pegged at about USD one trillion — nearly double the size a couple of years ago.

Sources said that the existing practices and regulations for wealth management space from all the regulators will be

collated to frame the final guidelines and an announcement to

this effect could be made in the Parliament during annual

Union Budget presentation next month.

The issue is likely to be discussed in the next meeting

of the newly constituted Financial Stability and Development

Council (FSDC),a high-level body authorised to deliberate on

inter-regulatory coordination matters,sources said.

The first meeting of FSDC was held late last month and

was attended by the Finance Minister as also chiefs of RBI,

Sebi and IRDA among others.

Wealth managers,who mostly act as investment advisors

for HNIs,are currently regulated by different regulators as

per the sectors in which they are offering their services.

However,there are no comprehensive rules to regulate the

wealth managers for services across various sectors such as

banking,markets,insurance,commodity and pension funds.

After the Harshad Mehta scam in 1992,RBI banned banks’

portfolio management services. Since then,banks are limiting

their wealth management business to advising their wealthy

clients without taking custody of the capital or assets.

RBI has now asked banks about their wealth management

practices and whether they or their relationship managers get

the Power of Attorney from the clients,sources said.

Sebi does not allow brokers to insist on PoAs from their

clients and might suggest the same for bankers and others.

As such,the portfolio management services in the capital

market are regulated by Sebi,but these regulations do not

cover asset classes such as fixed deposits and other banking

products,insurance,commodity and pension funds.