The Hindu Business Line : `Make advisers accountable for suggestion provided'

For those who are more than remotely interested in mutual funds, a consultative paper released recently by the Securities and Exchange Board of India on regulation of investment advisers will have great significance.

Or so feels the Financial Planning Standards Board India, which has thrown up an energetic response to the regulator's contention on the subject. This has come to us, courtesy a position paper issued by the Board, one that has spanned a range of topics that are all extremely relevant. Of particular interest is FPSB India's reference to the need for regulating "advice" and to the legal framework that has been in existence for some time in India.

Considering the sheer diversity of advisers, many of whom cater to mutual fund investors, this is indeed noteworthy.

We tried to sift through the fine print and focus on the aspects we think are important. The crux of the matter - and this does not come as a surprise - is that FPSB India has said whoever gives `financial advice', after interacting with the public, needs to be made accountable for the advice provided. In addition, the distinction between "advice" and "selling" needs to be established.

Key suggestions

The position paper also spells out the following:

* Advisors should be certified (and re-certified),

* There is a case for establishing regulatory organisations, which may be undertaken as public-private enterprise,

* All advisors interacting with people at large, whether an individual or an institution, should be brought under supervision and control,

* While an individual may be certified for the purpose of "selling" or "advising", a rating mechanism should be established for institutions,

* Rating of financial institutions rendering financial planning/advisory services will not be in conflict with other regulatory mechanisms.

Why are these points so important for MF investors? Bunched together, these deal with a central issue, one that arises from the grand mix of advisers we have in this country. We are referring to that arcane world made up of plain-vanilla distribution outfits in addition to chartered accountants, independent financial consultants, the ubiquitous LIC agents who also vend funds... the list, as you will no doubt agree, goes on and on.

At another level, as FPSB India's CEO, Mr Ranjeet Mudholkar, puts it, these points (encapsulated in the position paper) may well help SEBI ascertain its course of action on the regulation front.

The Board, he also claims, has tried to take up certification standards based on what is described as the 4 E's: education, examination, experience and ethics.

Regulated advice is expected to become even more important in the context of greater complexity in the funds domain. This is evident from the huge number of products that are now available in the market, thanks to new launches.

Many of these products, as it is often pointed out, are me-too in nature and style.

With more fund houses (that is, product manufacturers) trooping in and more investors (that is, consumers of these products) signing up, such complexity will only increase in the days ahead.

Coupled with this is escalation of intricacies concerning investments, the attendant volatility and stepped-up expectations of even the average investor.

Feedback may be sent to nilanjan@thehindu.co.in

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