Financial Daily from THE HINDU group of publications
Wednesday, May 10, 2006
Financial Daily from THE HINDU group of publications Wednesday, May 10, 2006 |
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Markets
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Mutual Funds
Nilanjan Dey
Under the ambit Investment advisors that may include wealth managers, private bankers and chartered accountants SEBI is also aware of the distorted picture presented by AUM figures
Kolkata , May 9 Here is bad news for distributors of mutual funds whose practices are encouraged more by commissions earned rather than clients' interests. SEBI has, for the first time, made up plans to regulate the distributor community. The regulator, aware that distributors have so far remained away from its ambit, also hopes to take its intention a step further — it plans to govern the behaviour of "investment advisors", a loose category that may include wealth managers, private bankers and even chartered accountants! While no concrete proposal is being considered at the moment, SEBI clearly wishes to bring distributors within its fold, Mr M. Damodaran, Chairman, SEBI, said here on Tuesday. The regulator will check out some of the practices followed in overseas markets in its attempt to bring in proper standards, he added. "Distributors of funds are sometimes seen as distorting the market with practices that are not entirely right," he said, adding that some intermediaries are on occasions driven by commissions earned, and not by the true interests of their clients. The commentary may be seen in the backdrop of the frequent entry-and-exit strategy that a section of investors have lately adopted. These investors, prompted by the many NFOs that the fund houses introduced in recent times, moved their allocations from one offer to the next. This, it is felt, is sometimes a result of poor-quality advice provided by the intermediaries. SEBI, it may be mentioned, is also aware of the distorted picture presented by AUM (assets under management) figures. "AUM numbers are not fully reflective of the true picture," Mr Damodaran commented while referring to one of the most common aspects of the MF industry. Distributors of MFs at this point are required to clear a test conducted by AMFI, the association formed by MFs, in order to qualify as product sellers. The SEBI chief agreed that the realm of "investment advisors" may well be quite vast, thanks to the inclusion of such miscellaneous sections as wealth management and preferred banking personnel. "At some point of time, we will have to think about regulating them as well," he said. SEBI, incidentally, had earlier sought the view of the AMFI on the possibility of its becoming a self-regulatory organisation. The proposal, however, did not proceed further.
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