Our discussions of SEBI’s paper on investment advisors have drawn a tremendous response. Here is the summary of the distributors’ perspective
Comments have been pouring in from distributors of financial products- apart from the ones that are already there in our website (Please scroll below for the earlier articles). We have decided to summarise some of them around a few critical areas.
Trail commission: What happens to trail commission which a distributor may have painstakingly built up over so many years, and also whatever upfront commissions he currently gets, if he wants to become an advisor? Indeed, if this sum is large, all advisors would not become agents and there would be no new advisors.
Qualifications: As per SEBI's proposal, a CA or an MBA or those having at least 10 years' experience can become advisors. Stockbrokers and sub-brokers are exempt. Does this mean that they are allowed to offer investment advice, especially since SEBI has allowed them to offer mutual funds as a traded product? Also, large distributors are mandated to have just two employees with relevant experience exclusively for this activity. Does this mean that their army of "relationship managers" is free to continue in its ways?
Freedom: Insurance regulation today does not allow agents to sell any product they like. They are tied to a manufacturer. Does it make them independent? To offer the best product to the customer, shouldn't an agent be allowed to sell any product across any mutual funds, insurance products, post-office offerings or bank deposits? If SEBI is so keen on customer interest, why hasn't it taken a lead in this regard in the High Level Coordination Committee (HLCC)? The fact is, if a fundamental customer issue like mis-selling will have to be addressed, all regulators have to come together or else it would create distortions.
Execution: The concept paper also says that an advisor cannot help in execution. Is this realistic, given the current state of products, lack of technology, multiple levels of KYC (Know Your Customer) norms? And does SEBI even know what customers prefer? Would they prefer to move from a mutual fund advisor to a mutual fund agent to an insurance agent to a banker for a fixed deposit?
Paperwork: The SEBI paper also talks about the documentation of all advice, suitability of products and storing of that information for five years. This only creates enormous paperwork without any purpose. One financial planner writes: "Maintaining records of all advice given to a client is bad enough... maintaining a record for five years of all conversations pertaining to advice is virtually impossible for everyone, but the biggest organisations."
Advisory scope: No investment advisor can deal independently across all financial products. One would need extensive and continuing research and also a compensation level from customers, which keeps advisors independent. In any case, it is not just about expertise and money. It is also about attitude. SEBI should find out whether it is even theoretically possible for a large bank to be independent in their approach.
These are just some of the issues that distributors have highlighted. If you have more points to share, please write to us at [email protected]
You may also want to read:
Investment Advisor Regulation III: SROs have never worked in the past; will it work now?
Investment Advisor Regulation - II: How SEBI's do-gooding can be easily undermined
Investment Advisor Regulation I: SEBI's ideas are, as usual, far from reality; may increase mis-selling!
The Enforcement Directorate had also submitted that the government had sufficient evidence to prove that Pune-based stud farm owner Hassan Ali Khan had several foreign accounts and illegal money to the tune of over $93 million had been stashed away abroad
New Delhi: In a setback to Pune-based stud farm owner Hassan Ali Khan, the Supreme Court today quashed the bail granted to him by the Bombay High Court in a money laundering case, reports PTI.
A bench headed by justice Altamas Kabir allowed the plea of Enforcement Directorate (ED) which had approached the apex court challenging the 12th August high court order granting bail to 58-year-old Mr Khan.
After hearing the submissions of the ED and Mr Khan, the bench said the "order of the high court needs to be interfered with."
The apex court had on 16th August stayed the bail granted to Mr Khan after the ED moved a petition challenging the high court order.
Mr Khan has been accused of holding two forged passports and granting bail would help him flee from the country, the agency had contended.
The ED had also submitted that the government had sufficient evidence to prove that Mr Khan had several foreign accounts and illegal money to the tune of over $93 million had been stashed away abroad.
It had said a Letters Rogatory had been sent to several countries for obtaining more information on his bank accounts having illegal money. The various transactions led by Mr Khan through his foreign bank accounts reveal his association with international arms dealer Adnan Khashoggi, according to it.
It had alleged that in 2003, $300 million was apparently received by Mr Khan from Mr Khashoggi from weapon sales.
Mr Khan, however, has refuted the allegations, saying the probe agency has failed to come out with evidence against him.
Poor logistics infrastructure and piracy have dampened prospects for several clones of Netflixs. Indian online movie rental services provider, Seventymm is still fighting with these issues even after entering into new verticals. This raises question on the consumer-entertainment model as well
The e-commerce space has been subject to much hype, especially the consumer-entertainment segment; where many new players have started taking interest. But how successful will these venture capital-backed portals be? Seventymm Services Pvt Ltd, one of the first entrants in the consumer-entertainment area, shows that there are some problems that weigh the prospects down.
Started in 2006 as a DVD rental portal, Seventymm.com has now shifted its focus to movie merchandising and e-commerce, and launched Shop.Seventymm. The online movie rental services provider ensures delivery to customer or subscriber in exchange of price of the products or registration fees. Using this facility, one can order gadgets, apparels, DVDs, books and home accessories from Seventymm, and even pay for them post delivery. Now, 50% of the revenues come from sales rather than the rentals.
In a recent interview, Seventymm CEO Mudit Khosla said that the company is planning to stream movies on 3G devices. With a customer base of four lakh, Mr Khosla hopes to generate revenues of about $1 billion by March 2012 by selling Hollywood-Bollywood tee shirts and other merchandise. The company has set up a separate merchandising team and partnered with 40 vendors for manufacturing the goods.
However, Seventymm's makeover has posed some new challenges. The basic problems, which plagued its DVD rental business still remains; and issues like rampant piracy of digital products and slow logistics infrastructure growth apply to other players as well. Moreover, some experts believe that emergence of low-cost original DVDs also dampened its prospects. Relying on the idea that the niche audience will be more interested in renting old titles, Seventymm continued with its business module. However, the company has been facing stiff challenge in form of torrent downloader and file-sharing services.
The business has taken a beating. Initially, the company was self-funded to the tune of Rs2 crore, but later received about $21.4 million in funding from venture capital firms Draper Fisher Jurvetson, Matrix Partners and NEA-Indo US Ventures.
According to analysis by VCCircle, audited figures for the year ended March 2010 indicate that it had recorded sales of only Rs6.8 crore. Data available on the Ministry of Corporate Affairs website shows that the company has been consistently making losses each year till FY2008-09. Till FY2007-08, the profit and loss account balance(debit) stood at Rs19.31 crore, which went up to Rs33.85 crore for the year ending 31 March 2009, which means a loss of Rs14.54 crore.
Despite poor performance, the company managed to raise further funds through fresh capital at premium. The company share capital has been rising each year. For FY2008-09 it went up to Rs1.55 crore from Rs 52.66 lakhs in FY 2007-08, which is inflow of Rs 1.02 crore. While the balance in reserves and surplus went up to Rs75.16 crore from Rs 24.91 crore (addition of Rs 50.25 crore).
Then in 2009, Seventymm was dragged to the court by Moserbaer, alleging violation of 'exclusive rental rights.'
The other major player BigFlix, meanwhile shifted its focus to online streaming and 'virtual multiplexes', and soon became the dominant player. Shemaroo Movies and Yahoo Movieplex too joined in.
Seventymm shifted its focus again, turning to movie merchandising instead. Apart from the 'Bodyguard' line, Seventymm's other offerings have been the 'Anna Hazare range of tee shirts and stuff related to movies like Band Baaja Baraat etc.
Unfortunately, movie merchandising hasn't been successful. Attempts were made to sell 'Ghajini' dolls and soft toys from the box-office dud 'Na Tum Jaano Na Hum', but there were no takers.
By diversifying and repositioning itself, Seventymm has placed itself directly in competition with the other ecommerce portals. The existing heavyweight players like Amazon and Flipkart, have become the go-to places for books and movies. Futurebazar is more known for consumer electronics and gadgets. And in the ecommerce space, it has many competitors like Quickr, YeBhi and Snapdeal. Seventymm, however, is seeing a rising tide of complaints. Almost on daily basis, complaints are being posted in consumer forums alleging non-delivery of goods despite full payment.
While the DVD rental model of Netflix worked in USA, it failed to deliver in India. Even Blockbuster, the most famous video rental chain last year, filed for bankruptcy and was later picked up by Dish Network. The consumer-entertainment space is a tricky one, and free internet content poses a stumbling block. The likes of Seventymm must tread cautiously and distinguish themselves in order to survive.