The duty of the regulator is to protect the investor and make rules for the market but the latest consultation paper is contradictory in many aspects which is very much high lighted in the article. The regulator should give different options to investors for investments & not force them to choose only a specific method only.In the present setup,the advisers are very conscious about the products advisability being afraid of otherwise out of profession and it will be a mere fiasco for majority of the investors in its absence.

SEBI has promoted the RIA model, sitting in an ivory tower. Switching to a fees only model is good in theory, but difficult in practice. In bearish times, will investors pay fees, when the portfolio is declining in value ? I have serious doubts whether they will. Similarly, when the portfolio rises in value beyond a certain level, investors would not like to pay fees, but switch to direct plans instead, as HNIs have done. In effect, SEBI might end up destroying the business by hairsplitting and micro-managing the mutual fund business beyond reasonable limits. Thus, mutual funds may go the way of fixed deposits, where investors try to save cost or get pass backs, without understanding the benefits of using advice. Finally, I see conflict of interest in a decision of any salaried or business person, every decision is linked to a persons livelihood, it is not unique to IFAs. I do not understand why IFAs are tagged with this conflict of interest label.

Cab SEBI regulate a service of providing advice on selection of mutual fund and any other financial advice - if not charged for from client?

I am a CFP nothing great but it taught me actually how to do advisory business. But sebi I like even if u r highest educated in the domain they say u answer the nism very very diluted version of cfp n be Ria how foolish. One side sebi allows people to do CPE n gives relaxation to senior citizens n then they get this regulation if u really want high standards scrap CPE make amfi mandatory with 75% passing then will see abt standards. U allow both advice n like hospital but it seems sebi also wants to have nexus btn products n advisory as wat is happening. And what about AMCs does the regulation mean any AMC guy who might be just a new immature graduate can advice any product just to complete targets? If sebi has got strength they should also look into insurance under ur ambit or see to it all financial products even insurance has 0 commission .

Nice compilation Vijay, The Regulator making this sector Much Confusing to Investor, DIRCT, REGULAR, MFD, RIA ... so on.... Dont Understand what exactly they want to achieve. Its very much sure that it will make huge confusion to Investor, already we have 2000+ schemes only in equity category to make his decesion confusing... now all these new models ..

When we have already a direct plan then all the regulation r worthless.all the regulator needs to do is to promote the direct scheme MN

Fee only financial planers are like astrologers. Their predictions may or may not happen but the fee is non-refundable.

Dear Mr. Venkatram, if i don’t take fee and take only upfront, with disclosure, claw back and constant bombardment of paid articles in media about Direct , after taking advice and service from me, if the client switches to Direct within one year, leave aside profit, how would i recover my expenses? Even if I take upfront + Trail ( obviously trail paid is around 0.5% in this model) even then it will be a loss making proposition and unsafe business model as claw back takes away upfront and trail will be paltry. In fee + only trail, I can charge a fee to recover at least part of my expenses and a higher only trail ensures that there is no claw back. Then why are suggesting that the law should be changed so that IFA can’t charge a fee? Doesn’t taking away the right to charge a fee hurt IFAs?

Why should a mutual fund advisor be stopped from taking a fee ? what is the conflict of interest in taking a ‘fee’? Isn’t stoping an IFA from taking fee a ploy to force him to upfront + Trail and force him away from only trail? Why isn’t the simple alternative of segregating mutual fund advisor and transact only distributor at remuneration not implemented as per SEBI Circular http://www.sebi.gov.in/cms/sebi_data/attachdocs/1314009686727.pdf , until now? If a transact only distributor is paid a small upfront and mutual fund advisor only trail ,would we have these harsh steps from SEBI? If advisor remuneration(only trail) is segregated and charged to scheme, isn’t it a fact that IFAs would not have paid service tax?

Dear Mr. Venkatram, Do you think the current commissions that an IFA receives(post service tax) are profitable? If they are profitable why isn’t the number of active IFAs increasing since 2009? What is the number of IFAs who take more than Rs.10,000/- commission from at least one AMC? Are the current commissions(post Service tax) sustainable in the first place? If they aren’t sustainable how would an IFA survive without taking a fee? If IFA is stopped from taking a fee, doesn’t it force him dependant on upfront commissions? Is upfront commission safe for investors? Don’t we know that upfront causes churning? Isn’t resistance from MF industry to ban upfront causing the harsher measures like disclosure and now a re-look at RIA exemption to IFAs?

Very well written Vijay.

The views given by MD of Wealth Forum were expected by me to be biased considering the fact that the forum is for distributors and AGENTS (DALAL). I can have rebutted on each and every opinion of him, but, instead, will voice myself FOR the SEBIs RIA Consultation paper to be investors friendly. I am a "Fee Only" Financial Planner since 2008. So, its obvious that the changes are surely expected to help my style of work.

Whether one gets to call himself as "IFA" or "Wealth Manager" or "MFD" is not important. We need to accept that : 1) Almost all IFSs give some level of advice without which it would be impossible & indeed improper to sell mutual funds. 2) IFAs depend on commissions from mutual fund as their primary source of income & believe that in near future it would be impossible to replace this stream with fee income. 3) Yes, there is conflict of income in points one & two above and hence efforts should be done to address this concern but you cannot scrap either embedded advice or fair commissions from funds.

I do agree with you. Model is always good but application is difficult. For RIA model many people are not ready to pay the advisory fees .Here customers can go with any scheme and are getting negative return but not ready to pay fees. Once we have txn charge many so called educated investors reflected.RIA needs financial education else only advisor without any fees.RIA must come with distribution. Your software runs on data what will you do without net connection.

I fully agree with you , appreciate your efforts . Thanks

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