SEBI Proposals To Bring Transparency But Costs May Rise
SEBI’s proposed amendments to the Investment Advisers regulations will bring in more transparency in the system and benefit investors at large, but it could also increase the cost for investors, say advisors.
In one of its proposals, SEBI has said that corporates should float a separate subsidiary to provide investment advisory services. Currently, they are allowed to do so through a separate department. Though there should be an arm’s length distance between advice and execution for more transparency, this proposal seems to be too restrictive. Execution part of the globally-accepted financial planning process cannot be ignored for helping clients achieve their financial goals. Creating a separate subsidiary will increase the cost and hit the investor’s pocket. Remember, even today, majority of Indians aren’t willing to pay fees for the advice. Small investors and those who are new to investing will take a big hit, as these are least willing to pay.
“Instead of telling advisors to create a subsidiary, SEBI should put more rigorous auditing requirements. Maintaining two entities will lead to higher costs of compliance, which means higher fees for clients,” says Sadique Neelgund, Founder & CEO, Network FP.
Rohit Shah, Founder & CEO at Getting You Rich echoes similar view and says, though this proposal would make banks and other financial institutions more accountable, it will also add overheads, restrict setting-off tax benefits, make it difficult to leverage and overall increase the costs.
Another key proposal by SEBI is to eliminate the dual role played by the distributors of financial products. In simple words, a distributor cannot advice, if he wants to, he will have to get registered with SEBI. This proposal will help provide better clarity to the investor as in whom to approach for the right advice. “Like there is a clear segregation between doctors and pharmacists, this move by SEBI will help provide a clear distinction between an advisor and a distributor,” says Shilpa Wagh, Chief Financial Coach at Wagh Financials. “Investors should go to financial doctors (registered investment advisers) and pay fees to them for advice. Then they can choose to buy recommended products from distributors or directly from fund houses (preferred).”
SEBI has proposed a 3-year timeline for distributors who seek to migrate to investment adviser role. Well, this seems to be too long a duration. “Investment Advisers regulations are in place for last 3 years and providing another 3 years will only delay the growth of new industry as companies will purposely delay the implementation of the law towards the end of third year,” says Abhishek Agarwal, Planner at Horus Financial Consultants.
Though the key motive of SEBI’s proposals is to avoid conflict of interest, it may not be avoided completely. What’s the harm if an investor gets good advice and execution platform at once place, with no sales obligation and full disclosures? “Clients want convenience. Regulator should address that too along with protection,” says Neelgund.
SEBI is also looking to bring in the robo-advisors and several professionals such as CAs, CSs, CFAs etc. under the ambit of Investment Advisers regulations. Advisers welcome this move and say it will bring everyone at par. Some also argue that insurance agents should also be put under these regulations.
While SEBI is looking to put clearer regulations, it is time for investors to take charge of their finances and approach professionals for financial advice. “Regulations can only do so much. People should take interest in personal finance. They should be willing to hire a professional if they are not in a position to handle their finances or do not have the time, inclination or knowledge to do so. And they should be willing to pay for high quality advice,” says Suresh Sadagopan, Founder, Ladder7 Financial Advisories.