Skip to main content

Sebi proposal on distributors, advisors can trip mutual funds

Image
By
Sebi proposal on distributors, advisors can trip mutual funds
Business from banks will be adversely impacted, advisors likely to go out of trade
The Securities and Exchange Board of India’s (Sebi’s) renewed push to split the role of an investment adviser and distributor is causing a lot of heart burn in the Rs 22 trillion mutual fund industry.
The industry, which has been riding high due to robust inflows of Rs 50 billion a month from the systematic investment plan route could suddenly find itself in a situation when one of the prime contributors to the assets under management, banks, will be completely out of action. “If the proposals are implemented, around 40 per cent of inflows will be impacted as wealth management arms of banks will no longer be able to give advice on mutual funds,” said the CEO of a fund house.
“The latest proposals will also drive the bulk of the business towards the distribution side,” said Dhirendra Kumar, CEO, Value Research. Distribution per se is a straight forward business model wherein the distributor receives a certain commission, either trail or upfront.
The business model of independent financial advisors (IFAs) will also be adversely impacted and most could simply go out of business. Sandeep Parekh, founder of Finsec Law Advisors, said the market regulator’s move would actually the harm retail investors. “If these PROPOSALS
¦ January 2018: Banks, NBFCs, corporates cannot offer both advisory and distribution, either directly or through a subsidiary

¦ IFAs can't give advice and distribute. Even immediate relative cannot do it

¦ June 2017: Corporate and banks were allowed to form separate entities/subsidiaries to offer advisory services

¦ October 2016: Corporate and banks were allowed to offer investment advice through separate departments or divisions
guidelines are implemented in this manner, the business of investment advice will no longer be lucrative. So only the richest will be able to secure investment advice, as it has happened in the UK where such a guideline exists. Retail investors will not receive any advice, which is harmful for them.” At present, there are about 100,000 mutual fund distributors with about 10,000 ones IMPACT

¦ Sales of insurance products would get a boost if new proposals are implemented

¦ In the absence of banks and institutions, inflows will be adversely impacted

¦ Pure advisory models will go out of business as compliance cost and investors' lack of willingness to pay will be hurt

¦ Hamper penetration of mutual funds in smaller cities where investors need handholding

active, on industry estimates.

Sebi’s latest proposals also plan to disallow banks, non-banking financial companies (NBFCs), corporates, limited liability partnerships (LLPs) and firms that provide distribution services from providing investment advice, either directly or through a holding or subsidiary company.
This means that wealth management arms of banks, one of the big sources for mutual flow inflows, will not be able to offer mutual fund advice. Currently, the MF sector’s inflows come from three sources – 40 per cent from banks and 30 per cent each from independent financial advisers and national distributors. Industry players said for leading players like ICICI Prudential Mutual Fund, HDFC Mutual Fund and others, collection from their bank branches would be higher.
The latest proposals also bar registered investment advisers from distributing mutual funds through immediate relatives. “The interpretation makes it amply clear that one entity or family cannot offer both distribution and advisory services,” said Anjaneya Gautam, national head – mutual funds, Bajaj Capital, a national distributor that is also separately registered as an investment adviser. Fund heads point out that there could be a case where one brother was an investment adviser and another a distributor. “How can a person just shut down the business because his brother is an investment advisor or vice versa?” said a fund manager.
Sundeep Sikka, CEO, Reliance Nippon Life Asset Management Company, believes allowing IFAs to advise and distribute, but only for certain kind of investors, will make things better. For example, allowing an IFA to offer advice to the retail investor, but to act only as a distributor for large investors. “There can be different rules for both categories. But this could help,” said Sikka.
The proposed changes will hamper mutual fund penetration in smaller cities as these investors need hand holding. One out of every rupees five invested by individual investors in mutual fund schemes now comes from B15 cities.
The Business Standard, New Delhi, 4th January 2018

Comments

Post a Comment

Popular posts from this blog

RBI minutes show MPC members flagged upside risks to inflation

By
RBI minutes show MPC members flagged upside risks to inflation Concerns about economic growth and easing inflation prompted five of the six monetary policy committee (MPC) members to call for a cut in the repo rate, but most warned that prices could start accelerating, show the minutes of the panel’s last meeting, released on Wednesday. The comments reflected a tone of caution and flagged upside risks to inflation from farm loan waivers, rise in food prices, especially vegetables, price revisions withheld ahead of the goods and services tax, implementation of house rent allowance under the 7th pay commission and fading of favourable base effect, among others. On 2 August, the panel chose to cut the repurchase rate—the rate at which the central bank infuses liquidity in the banking system—by 25 basis points to 6%. One basis point is one-hundredth of a percentage point. Pami Dua, professor at the Delhi School of Economics, wrote that her analysis showed “a fading economic growth outlook, as …
Post a Comment
Read more

Shrinking footprints of foreign banks in India

By
Shrinking footprints of foreign banks in India Foreign banks are increasingly shrinking their presence in India and are also becoming more conservative than private and public sector counterparts. While many of them have sold some of their businesses in India as part of their global strategy, some are trying to keep their core expertise intact. Others are branching out to newer areas to continue business momentum.For example, HSBC and Barclays Bank in India have got out of the retail business, whereas corporate-focused Standard Chartered Bank is now trying to increase its focus on retail “Building a retail franchise is a huge exercise and takes a long time. You cannot afford to lose it,” said Shashank Joshi, Bank of Tokyo-Mitsubishi UFJ’s India head.According to the Reserve Bank of India (RBI) data, foreign banks’ combined loan book shrunk nearly 10 per cent from Rs 3.78 trillion in fiscal 2015-16 to Rs 3.42 trillion last financial year. The banking industry, which includes foreign banks…
Post a Comment
Read more

Differential Tax Levy under GST: Food Firms May De-Register Trademarks

By
Differential Tax Levy under GST:Food Firms May De-Register Trademarks The government’s decision to charge an enhanced tax rate on trademark food brands is leading several rice, wheat and cereal manufacturers to consider de-registering their product trademarks. Irked by the June 28 central government notification fixing a 5 per cent goods and services tax (GST) rate on food items packaged in unit containers and bearing registered brand names, the industry has made several representations to the government to reconsider the differential tax levy, which these players say is creating an unlevel playing field within these highly-competitive and low-margin industries. Sources say that the move has affected the packaged rice industry the hardest and allowed the un-registered market leaders, India Gate and Daawat, to gain advantage as compared to other registered brands such as Kohinoor and Lal Qilla. Smaller players are even more worried with this enhanced rate of tax (against the otherwise …
Post a Comment
Read more