Sebi's advisory guidelines face resistance from United Forum

The forum of IFAs said Sebi's new regulations will put 70-80% distributors out of business

United Forum, a forum of national and regional associations of distributors and independent financial advisors (IFAs), has opposed several of the proposed amendments to Sebi (Investment Advisors) Regulations, 2013, saying the proposals would put 70-80 per cent of distributors out of business.

The Securities and Exchange Board of India (Sebi) had issued a consultation paper last month proposing changes in regulations governing investment advisors and invited comments from the stakeholders by November 4. The deadline has now been extended to November 30.

According to the proposed norms, MF distributors will not be allowed to provide incidental or basic investment advice pertaining to MF schemes unless they register themselves as investment advisers. United Forum has opposed this mandatory registration of distributors under IA regulations. It wants distributors to be allowed to recommend products, and not merely restrict themselves to describing product specification.

"There are almost 2,500 MF schemes across multiple categories and there is no standardisation in reporting of data. Historical returns may be reported on a point to point basis, absolute returns, annualised returns or rolling returns. Investors can't understand all these on their own," the forum wrote in its letter to the regulator dated November 4.

According to the forum, various surveys have indicated that Indian investors consider the role of distributors and advice as a key to their decision making process and do not have concerns regarding mis-selling and pricing of products. "There is a lot of handholding that investors need for their investments and stopping distributors from playing a meaningful role will be detrimental as retail investors especially from B15 cities may not seek advice from registered IAs because of the upfront advisory fees required under advisory model," says the note written by the forum.

The forum wants entities such as brokers or portfolio managers engaged in provding advice to their clients as an auxiliary service be exempted from registering under IA regulations. Also, persons providing trading tips, stock recommendations through SMS, email and any other social media should not be asked to obtain registration as IAs. Restricting trading tips on social media is akin to a restriction on freedom of speech, the forum has argued.

Investment advisory services should be allowed to be offered through separately identifiable divisions rather than separate subsidiaries. "The separate subsidiary requirement may backfire as corporate IAs may set up thinly capitalised subsidiaries, thereby limiting investors' claims," says the letter. Even banks, the forum has argued, may be forced to shut their MF distribution business as they will not be able to distribute MF products without an element of incidental advice.