Sebi wants check on investment advisors

The Securities and Exchange Board of India (Sebi) has suggested creation of a private sector self-financing regulatory organisation (RO) as a first-level regulator for investment advisors.

In a consultative paper on regulation of investment advisers, put out by Sebi on its website for comments and feedback, the market regulator said it was not feasible to regulate such a large number of advisors directly as a frontline regulator within its current resources or even with resources likely to be available in future.

There are lakhs of advisors and distributors in India, who act as investment advisers but not registered with the Sebi. These include (a) one-stop shops calling themselves financial/investment consultants or advisers, who are engaged in distribution of retail financial products (b) banks, certified financial planners, chartered accountants, tax consultants, etc (c) entities not registered with and rendering investment advice on publicly accessible media such as television, newspapers, radio, internet, mobile phone services, etc.

"One view is that a private sector self-financing RO should be created to be the first-level regulator for investment advisers. The RO should develop principle-based regulations with risk-based examinations and implement regulation of discrete market segments in phases.

The RO should publish regulations defining the process for regulation and registration, entry and exit, reporting and market conduct. These should include regulations on advertising, performance reporting and presentation, disclosure of conduct, experience and conflicts, disclosure of services and fees, prices and commissions and fair dealing," the consultative paper said.

The discussion paper also suggested that for effective regulation, the RO should regulate investment advise relating to all the products and not just securities advisors as the investment advisors give recommendations on other products such as insurance, commodities, pension products and government products, including bonds and postal deposits, company deposits, NBFC deposits and mortgages.

Since all products fall under the jurisdiction of different regulators/agencies, it was not legally possible for any regulatory bodies/agencies to regulate a products outside its jurisdiction. The same RO reporting to various regulatory agencies would lead to undesirable multiplicity of authorities over the RO.

In the US, there is no separate RO for investment advisors. The work relating to regulation of investment advisors is split between the Securities Exchange Commission and the State Governments, the paper pointed out.