Regulators, govt to tighten supervision of financial advisors

The government and financial sector regulators have decided to work out a policy for regulating financial intermediaries to reduce the scope of mis-selling of products and improve investor education.

A panel, headed by Pension Fund Regulatory & Development Authority (PFRDA) Chairman D Swarup, has been set up as some of the regulators believed that investors were unable to make an informed decision due to the fragmented nature of various segments of the financial sector.

While an earlier panel headed by the then Insurance Regulatory & Development Authority (Irda) Chairman C S Rao had concluded that investor advice being rendered was more-or-less fine, some of the regulatory agencies were learnt to have raised concerns.
 

PLUGGING HOLES

* A high-power committee has been set up to regulate financial intermediaries and bring in uniform norms for all financial products

* The panel, headed by PFRDA Chairman D Swarup, includes representatives of the RBI, Sebi, Irda and Finance Ministry

* The panel will examine if there is a need to have a set of regulations for financial advisors and find ways how to regulate them better

* The committee has already had its first meeting

As a result, the high-level committee on capital markets, comprising top officials from the regulatory agencies and the finance ministry, recently suggested that a fresh look into the matter needed to be taken.

“There is a high degree of mis-selling. On Monday, investment advice is based on the segment of the financial market you go to and the commission that is paid to the intermediaries. An insurance agent is never going to suggest that you invest in a bank fixed deposit, or a mutual fund distributor will not advise you to buy an insurance policy even if you do not have one,” said a senior official at a regulatory agency.

Mutual fund and insurance products were being sold under different sets of norms with high degree of variation in commission structures. Apart from this, there is a dire need to adequately and efficiently use the huge amount of investor protection fund lying with regulators for investor awareness and education purpose.

A committee member said the group would examine if there was a need to have a set of regulations for financial advisors and how to regulate better.

Apart from Swarup, the new panel will have representatives from the Reserve Bank of India (RBI), the Securities and Exchange Board of India (Sebi), Irda and the finance ministry. It has decided to co-opt experts and seek institutional advice.

“Already, investment advisors have to make enough disclosures and also register with regulators. While more transparency is a good idea, excessive regulation will eliminate the role of individual and small financial advisors, enabling only large institutions to have complete control over the multi-crore financial advisory business,” said a leading Mumbai-based financial advisor. In addition, the sources said that while financial education had risen in recent years, with every regulator stepping up activity, there was no comprehensive literacy programme to help individuals decide where to invest.