MF AMCs disregard SEBI Advisor regulations

Investment advisory in India is regulated by SEBI. A majority of investment advisors continue to operate completely disregarding the SEBI investment advisor regulations. Many mutual fund AMCs offer incompatible advice to distributors, which I believe encourages regulatory non-compliance.

It is my firm belief that when it comes to money management, investors should either DIY or consult only those advisors who obey SEBI norms (SEBI has ‘cautioned’ investors similarly). As a result, over the last couple of years, I have gained the reputation of being “anti-advisor” and called a variety of names for saying, ‘seek professional advice from those who follow rules or DIY’.

When most financial advisors pick and choose which regulation to follow, I see no reason why investors should take their laments about ‘free lunch’, ‘people don’t pay fees’ and the like, seriously.  I have lost ‘friends’ for saying this, but I continue to write such posts because … well, as you know by now, I am stupid.

In an earlier post on the subject, SEBI should first regulate advisory at the AMC level, I had mentioned how SEBI should force the implementation of the advisor regulations in product brochures. In this post, I would like to point out that AMCs are offering advice to distributors which is not compatible with SEBI norms.

What are the advisor regulations?

SEBI has clearly laid out regulations that

1) People who offer investment advice will have to be registered as investment advisers.

2) Distributors cannot offer investment advice. They can only offer ‘incidental advice’. Financial planning, Goal planning and risk profiling are not incidental activities!

3) People who are involved in multiple activities regulated by SEBI must get registered as investment advisers. They would also be known as registered investment advisers.

In simple terms,

  • phamacists cannot prescribe medication but only provide product service
  • doctors cannot be pharmacists

Although SEBI has made it clear that distributors cannot provide investment advice, in advisor gatherings/meetings/conferences, AMC officials encourage distributors to provide investment solutions for a fee, if possible with financial planning certifications. They want distributors to be solution providers and not just service providers.

If distributors follow such advice, they can no longer distribute products!

Distributors cannot offer solutions, only incidental advice. A certified financial planner charging a fee for advisory cannot distribute products.

The AMCs see ‘professional’ product pushing as the next step for AUM growth and perhaps more importantly, retention. This is incompatible with SEBI regulations.

Is it ignorance on the part of AMCs or blatant disregard for SEBI regulations? I do not know.

Either way, I believe only SEBI registered fee-only financial planners should be consulted for financial advice.

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One thought on “MF AMCs disregard SEBI Advisor regulations

  1. Nilesh KAMERKAR

    Also please give do a serious thought to . . . how to go about auditing performance of registered RIAs?

    What should be the threshold returns below which SEBI shall consider terminating licences issued to good for nothing RIAs.

    Otherwise, mere issuance of RIA licence doesn't mean much . . . Its only one more revenue generation stream for SEBI.


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