The SEBI consultation paper on amendments and clarifications to the SEBI (Investment Advisors) Regulations 2013, which seeks to separate the roles of mutual fund distributors and investment advice, has come in for strong criticism from the distribution industry.

Srikanth Meenakshi, COO and Co-founder, FundsIndia.com, an online platform for mutual funds and equity investments, said that the motivation for that consultation paper is still unclear. Pointing out that India is still a significantly under-invested country, with retail participation in financial products at an abysmally low level, he said the step was not in the right direction.

He said, "It will definitely harm the ecosystem of the MF industry and financial products intermediation. But more significantly, it will harm and lessen the ability of the retail investor to get good advice at a reasonable price from the market. Today, the system is quite elegant. There is only one number the investor has to worry about – the total expense ratio – that is all the cost they are incurring for investing in a MF. At the end of the day, they have to pay the fund manager for managing the portfolio and an advisor for his efforts and services. Whether they pay directly or through the AMC, it is a moot point for investors. To do something like what the regulators are suggesting and remove the ability of MF distributors from providing advice, will be a set back in terms of enhancing the scalability of good advice in retail financial services market."

Arguing that investors are in any case already paying for advice, he said that his own organisation, FundsIndia, runs by what they pay for advice. Independent Financial Advisors ( IFAs) make a living by what investors pay for advice. It is just that they are not cutting a cheque or paying it directly, he said. He suggested that it would be sufficient if investors are informed that they are actually paying for advice.

Defending the distribution industry strongly, Srikanth said, "It is not that MF industry/ IFAs/national and regional distributors are running a racket or that they are running a disproportionately profitable business. It is run in a reasonable fashion - providing good services to customers across the country. For them to make a viable amount of revenue that is reasonable and growing and to let them be profitable is not a crime. That is a reasonable thing to do in a free market economy, in the financial services industry.I do not see anything wrong in the way the intermediary is remunerated for the advice. "

He felt that constant tinkering with the regulations and 'having a sword hanging on top of our head' is no way to run an industry. There has been a representation from the distribution fraternity and fresh developments are awaited this week.

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