December 19, 2012

Views on Upcoming SEBI’s Investment Advisor Regulations

Sadique Neelgund

Indian Merchants Chamber (IMC) held a seminar in collaboration with Bombay Stock Exchange (BSE) on Regulatory Changes for Investment Advisors on December 18 in Mumbai. I was invited to be on the Panel Discussion to share my views on upcoming advisor regulations… I am sharing the same as Q & A with Network FP community.

In the first place it is not appropriate to generalize the views of investment advisors. I would prefer to categorize advisors into 2 categories – 1. Who think of financial advisory as a “profession” and 2. Who think of financial advisory as a “business”. Network FP or I represent the views of the former kind of advisors who are open to change, forward looking, are adopting financial planning approach and treat advisory as a profession and not strictly as a business. Unfortunately this group is a very small group as of now but I have a strong belief that this category is the future of financial advisory… for the very simple reason that consumers need “professionals” not “businessmen” to manage their money. Yes… an IFA has both the roles to play… but a true advisor has to draw a line between both the roles and give priority to being a professional.

What does advisor believe are the client expectations he fulfills?

Advisors can fulfill all the client expectation either by themselves or by having tie-ups with other professionals. What is more important is “What is it that client expects from the advisor.” Today… an informed investor expects and needs two things

One – a professional who can help/assist with all advisory solutions & transactional capabilities

Second – unbiased advice from a person who understands their needs and they can trust.

How is advisor remunerated for the benefit?

Pure fee or pure commissions based business is not viable due to various reasons in the current situation.  There will be set of clients who want complete advisory solution and there will be set of clients for whom transactional solutions maybe good enough and there will be clients who will demand a mix and match of both advice and transaction.

It is practically difficult to be “fee-only advisor” or be “commission –only distributor”. In the interest of both advisor and client…. it is advisable to structure your compensation model using both fee and commissions.

How does advisor respond to mis-selling allegations?

Mis-selling is a genuine allegation and many investors have been mis-sold. But please remember that not all advisors should be blamed for this. Good advisors who have not done anything wrong need not be really worried about this allegation. In fact it’s very easy for a genuine advisor to acquire a dissatisfied and mis-sold client. Because clients need advice… they need an advisor… and if you come across as clean, genuine and knowledgeable … you are in business anyways.

How much does advisor cross sell and what are the regulatory impediments in terms of registrations, reporting and compliance

Cross selling happens with mutual funds and insurance. There is a great need for SEBI and IRDA to work together on investment advisor regulations… which is not happening.

IRDA has to promote no-load products too. It is unfair to move only the mutual funds towards no-load structure. No-load financial instruments across the all the asset classes will help nurture a fabulous advisory profession.

What are the tools available to advisor to service the clients?

This I think will remain a long term challenge. We recently held a Technology Conclave for Financial Advisors… there are basically 6-7 tools/ applications a financial planner requires to function efficiently to offer seamless services to clients.

1. Financial Planning Software

2. Portfolio Management Software

3. Product Transaction Platforms

4. CRM Software

5. Money Management Platform

6. Product Research Softwares

7. Risk Profiling Softwares.

After need for “professional knowledge” and “consumer awareness”… I think the biggest challenge for an advisor would be to identify & implement the right technology in the practice. The challenge is in synchronizing all these solutions to give a seamless experience to clients.

What are difficulties advisor faces due to frequent regulatory changes

Advisors are really really fed up with regulatory changes. Regulators should stop having these long waiting periods between discussion papers and final announcement. The morale and confidence of fraternity goes down drastically with these silent waiting periods.

And there is such a short period between final announcement and actual implementation. There has to be transition time given between announcement and implementation.

Aligning the business processes for compliance and client communication are a pain after regulatory changes.  Progressive advisors now want a long term regulatory outlook whichever ways…

At ground zero how practical is it to comply with what is expected of advisor?

It is not difficult to comply… Yes as human nature… people will always be reluctant to change and eventually do change and start realizing later that change was in their interest. But provided there are 3 things taken care by the regulator…

  1. A proper transition time of 2-3 years
  2. Robust advisor training programs subsidized by regulators
  3. Consumer awareness about professional advisors & their service model


Is Investment Advisory business a standalone paying business?

Definitely yes but provided all the investment and insurance products have a no-load offering too.  In US… there is a body called as NAPFA which is an association of fee-only advisors and there are more than 2000 members in the association. The point I am trying to drive is it is very much possible. Infact fee-only advisors enjoy a very high degree of professional satisfaction and their clients are the most satisfied clients amongst the whole lot of financial advisors with different compensation models.

Do the present training and certification initiatives of FPSB, NISM, AMFI and NCFM really prepare the Advisors to meet the needs of the investors?

CFP certification by FPSB India is the best education program in India as on today. It’s rigorous, comprehensive and gives a holistic view to deal with client’s money.

We cannot say the same about many of the NISM, AMFI & NCFM Certifications… we need a rigorous education system for financial advisors. When I say education… I mean both initial education and continuous education. An established body of knowledge is the hallmark of any profession and professionals are respected and recognized for their knowledge and contribution to society not for their sales & marketing skills.

Many financial advisors proudly call themselves financial doctors… but this is not a fair comparison. Look at doctors… they undergo a structured education program for 5-10 years. And we call ourselves doctors after attending a 2 day training program and after passing a 2 hour exam.

I am not saying that CFP Certification is the ultimate certification but it is the bare minimum I would expect from a professional. If the regulators are not comfortable with a foreign certification… then develop & promote an education system which is on par or above CFP Education Program.

There a need for a standard certification which needs to be recognized by the regulator and promoted amongst consumers.

What is international experience on regulating and providing the services abroad?

UK Regulations – in March 2010… UK’s FSA Financial Services Authority released Retail Distribution Review what’s now popularly called as RDR. Ban on commission, higher compliance on advisory process and higher level of education for advisors are the highlight of changes coming in UK. This is coming into effect next month… January 2013

Australia Regulations – Australian Government released a paper called Future of Financial Advice or FOFA in April 2010. Which basically announced ban on commissions, volume based benefits and higher compliance on advisory process. This is coming into effect by July 2013.

Many other developed and developing countries are talking on same lines because by nature duty regulators are supposed to act in consumers interest. In US at least they have been no-load products across asset classes which help the fee-only advisors offer their services.


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Authored by,

Sadique Neelgund

Network FP 

31 Thoughts to “Views on Upcoming SEBI’s Investment Advisor Regulations”

  1. Kindly note that an official note from IMC will be released on proceedings and views of other panelists. Network FP will share the same once it is released.

    • Further… there was no clarity on when regulations will be implemented and in what format from the regulators who participated.

      The onlymessage which came out from them is why regulations are important and it will be implemented sometime soon… so be prepared.

  2. Awesome thought "consumers need “professionals” not “businessmen” to manage their money." 🙂

    • I fought enough with myself on this "professional" vs "businessmen" when I was doing financial planning.

      In fact going forward sales & marketing should not be high priority task of a professional. For professionals – consumer awareness and word of mouth works well. Yes… we the pioneers have to struggle with creation of profession.

  3. hvbhusari says:

    Thanks for putting across clear and precise views on what needs to be actually done by the Regulatory authorities. Fee and commission based models have to live simultaneously at this stage in India.


    • Yes.. Harshavardhan… and somewhere down the line distribution will be driven by technology and consumer awareness… so actually after some time distribution will become commoditised the cost and remuneration will go down drastically.

  4. jaishirali says:

    While one agrees that we need much more professionalism in the industry, the point is that brokerage and advice must be simultaneously allowed for advisors, until there is a reasonable amount of investor awareness for paid investment advice. One cannot compare India with single digit penetration of mutual funds with economies with over 60% penetration and expect advisors make a livelihood purely on advice fees. If one compares this to chartered accountants and lawyers, both of whom were on the panel at BSE, it makes the point clear. Lawyers not only advise, but prepare the brief and appear in court for their clients. Chartered accountants advise the clients, as also prepare the financial statements. In other words, the advice and action emanate from the same professional. Then why the differentiation is insisted on in the financial advisory industry ? 

    • Hello Jaideep its perfectly fine and in fact clients want it this way – that the advice and action be assisted by same person. I think this will go on even in the new regulatory set-up. What is stopping a doctor to open a medical shop outside his clinic. Similary I think final regulations will be flexible enough to allow this kind of business models flourish.

      The regulations are to regulate the advisory process, make sure advisors meet certain minimum standards, are held responsible for wrong-doings… In fact this kind of a move will give a lot of credibilty to the profession and bring confidence in consumers in the profession.

  5. SURESH DV says:

    Well answered participation Sadique..

    I feel it has to be a collective effort towards the society and not and I or me only approach.

    It calls for mass literacy of society at every level to educate the importance of a financial planner in their lives for a sound financial health of their families. One a one of one, it is not going to make an impact for self or for the professional community we represent. A collective effort to reach out to masses without expectations would surely pave way, not only for this generation of Planners but also for the generations to come.

    Fee alone in the present scenario of market conditions, does not meet the ends at family, that is why more and more CFPs are into teaching profession which is more lucrative.

    This is not touching the regulations and its impact… of course.


  6. Uttam Kumar Sen says:

    Information – rich CONDENSED …fantastic job! Problems with tremendous Opportunities!!

    Foreign Certification should not be a barier, then in case of an International Medical Graduate/Engineer might have limitation or restriction. Mental barriers are the only problem…simultaneously, a certificate or digree should not be the ultimate consideration, other areas are equally important.


    • Right Uttam… as per my understanding… SEBI does have some issue with recognizing CFP because a major chunk of Renewal Fee of Rs. 5000 we pay goes to American body. And I also feel its a genuine concern when we see the future when we will have thousands of practitioners.

  7. abhinav0115 says:

    Thanks Sadique for posting the interaction. Very useful interaction. I agree that regulator should  reduce the gap between draft and final regulations . This problem is not with one regulator but across. 

    Also you have made a very correct point on financial planners as "doctors" and why the comparison is not exactly justified. 



    • Yes Abhibav… unfortunately financial advisory education is not considered as a mainstream education wherein youngsters have the aspiration to become a advisor/planner like youngsters have of becoming a doctor, engineer, CA etc.

      Unless there are measure to make it a respectable and remunerative profession… this will not happen…


  8. Ranjan Varma says:

    While it is impossible to disagree with "consumers need “professionals” not “businessmen” to manage their money.", professionals have to be astute businessmen to succeed/scale up! 🙂

    Moreover, are we thinking from the consumer/client point of view? What does the consumer of advice/distribution need/want? Is he able to differentiate between advice and distribution at all? 

    I guess we also need some regulations for people who "take" advice (apart from ppl who "give" advice) 🙂

  9. Ketan Lad says:

    Atlast a concrete step towards Professional Financial Planning Practice.

    • Yes… if these regulations come in with a good preparation, planning and implementation from SEBI…. financial planning approach is the way forward for all financial advisors. Also advisors have to overcome the inertia to change and be progressive thinkers looking at long term benefits to them and society.

  10. Nice Thought, Consumer always need a professional. 

    I agree with you in abolish the commison from other asset class. So we were working freely.

    I am doing proper financial planning without having a CFP or much education. In my location I am only talk about financial planning and other are talk about products & commisons. So minimum regulatory body avil who provide both, like education to IFA & control to IFA also.

  11. binapandit says:

    Thank you Sadique for sharing this,

    it helps to update and also know the different views. There is also need to simplify the regulation, its so complicated that one really needs to break their head for "how to comply these regulations", SEBI should also consider giving brief about regulation to IFA community rather than just publishing and expecting people to follow.

  12. Biju Behanan says:

    Hi Friends,

    When there is heated discussion on the Investment adviser regulation on the levels , quality of education etc , I am attaching a link on the UK FSA site who have deliberated extensively and have made their report. This is coming for implementation in 2013. See the level of detail and the criteria used.

  13. Ashwini Bidwalkar says:

    Hello Sadique, thanks for keeping us up todate.

    I especially liked the point -' Consumer awareness about Professional advisors and their Service Model'. The value proposition behind availing the services of  a professional financial advisor who is well versed with your financial situation and your goals, should be brought to the forefront. I hope that, with the advent of  finacial literacy drive in the media, the importance of goal based financial planning and asset advisory service  will reach the masses.

    • Thanks Ashwini for your comments. Its not just the media who has to take up the onus of consumer awareness… even planners have to take up the responsibillity like most of them are already doing 🙂

  14. Mukul says:

    Hey Sadique, your efforts and passion towards building a strong FP Advisory practice needs no mention. And you have been constantly updating all of us thru your posts on the latest developments. I also read the views of the other fellow advisors above and ur reply to them. One thing which I wish to know from you is whether there was any discussion on the kind of compliance that we as advisors will have to manage while advising to our clients? If no such discussion happened at the IMC seminar, will appreciate if you can share your views as to what it can be. Thanks a ton for all your efforts… 🙂

    • Thanks Mukhul. Their was no further clarity on compliance discussed on Panels. I dont know what will final compliance will be. But I consider that compliance acutually are good, so that we document and streamline our own processes and systems. Yes… it will involve costs and efforts but it pays off in the ways of efficiency and higher client confidence in advisor. Infact we should treat it as an opportunity rather than as an headache.

  15. ig says:

    I love it when individuals get together and share thoughts.
    Great blog, continue the good work!

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