January 3, 2018

RIAs vs MFDs – Relax and Focus

Sadique Neelgund

RIAs vs MFDs – Relax and Focus

SEBI has yesterday released yet another (3rd) consultation paper on the way forward for RIA regulations and MFDs. Sharing my thoughts on the same.

The new proposal aims to stop RIAs, individual and corporate from offering distribution services, directly or indirectly. This is a bad news for many RIAs who have distribution and advisory services running parallel with a proper segregation, disclosures, and arms-length approach… which was allowed and approved by SEBI.

And in the 2nd Consultation Paper, SEBI had proposed to stop MFDs from doing any kind of advisory tasks like risk profiling, asset allocation, and financial planning. And essentially just stick to explaining product features and execution of the transaction. This proposal is still intact and may be considered while drafting of final regulations.

The 3rd Paper speaks of MFDs following Principle of Appropriateness while suggesting an MF scheme. Only the final paper and time will tell, what SEBI means by this.

Frankly, I think nobody knows this and I am not sure even if SEBI has finalized what they want this to finally mean. So MFDs future is also very uncertain and that’s bad news for them too. Add to that talks of TERs and commissions coming down and distribution becoming commoditized by technology.

One clear winner of the new proposal is the FEE-ONLY RIAs. However, that number is very very small and we still don’t have many success stories of this model in India… (But some have started to make this model their USP and they will eventually emerge as a major force.)

I think there is no point trying to guess how things will pan out in future. For now, it’s better to simply focus on what we are currently doing till the final regulations come and clarity is given by SEBI on the way forward.

Advisors and Distributors are not averse to change but are averse to uncertainty. I hope SEBI understands this difference and gives a long-term roadmap instead of meddling with regulations every now and then.

After a very long time and lots of efforts, the industry and financial advisors are seeing good growth… so why not focus on the present.

So I think IFAs, MFDs, RIAs or CFPs… should simply continue to do whatever they are doing currently with a more client-centric approach. Keep adding value beyond the mere transaction. And have ethics as the foundation of practice and genuinely try and give your best to clients.

And when the final regulations actually come in…. we all together will figure out a way to adapt to new changes. I am sure good people in the business will not just survive, but actually thrive. Clients need guidance and service from financial advisors to manage their money. Becoming complacent is not an option, we need to be agile and adaptive as the situation demands.

Keep your eyes and ears open on developments on this matter. But for now, Relax and Focus on continuing to do the good work. Figure out ways to add more value to your clients than what you did in past. And keep learning and implementing best practices. Make sure in 2018, your clients are delighted with your service, solutions and engagements.

One suggestion to all IFA/RIA associations/bodies responding to SEBI on this consultation paper. Please ask for a 3 to 5-year deadline instead of the currently proposed March 31, 2019. With time on our side, we can adapt and transition successfully.

Wish you a Happy New Year 2018!


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