Just 11 entities, including seven individuals have registered as investment advisor with SEBI since the advisor regulations came into force. Is it too early? Or does it vindicate Moneylife’s stand that this regulation is irrelevant given the structure of financial services business?
The much-touted investment advisory regulations from Securities and Exchange Board of India (SEBI) have failed to enthuse registration. A SEBI release on 28th August reminded market intermediaries of this new regulation possibly because only 11 entities, including four firms have registered as investment advisors. The reason is obvious. No financial advisor wants to earn a living only out of advisory fee. There is no market for it. In any case, the advisor regulation applies to just one product that SEBI regulates – mutual funds. It does not apply to insurance, a major source of mis-selling.
While bringing advisory regulations, a well-intentioned SEBI wanted to make a distinction between selling financial products and advising about them. In the first case, the seller (distributor) is working for himself and the financial services company because he is driven by commissions. He is not working for the investor, necessarily. It creates a conflict of interest when he is ‘advising’. In the second case, the advisor is acting for the investor. He is advising for a fee about the best choices. SEBI has asked everyone to make a choice between the two.
You cannot both sell for commission and also advise the investor. Well, may be it is too early, but given a choice, it appears that everybody would want to sell for commission and not advise for fee. This is simply because there is no market of investors seeking pure advice.
Interestingly, the Financial Planning Journal, published by the Financial Planing Standards Board of India (FPSB) has names of over 1,750 financial advisors. These people are from the most likely category to register with SEBI as investment advisor. However, there are only seven individuals, who though it proper to get themselves registered with SEBI.
While drawing up regulations, SEBI did not take into account the actual situation on the ground – average to poor mutual fund performance, quality of advice and mis-selling by large distributors and investors’ attitudes.
SEBI has also enshrined in the advisor regulations that investors have to be profiled for risk including age, investment details, income details, risk tolerance, liability and others. Will risk profiling ensure that the lead will not be passed on to those agents who would share their commissions with the advisor friends?
While removing the so-called conflict of interest in selling, SEBI has also created difficulties for the honest distributor. Considering the actual situation on the ground, a financial advisor asked, “What is a distributor supposed to do when customers ask for advice? Is he supposed to not help the customer? Or what does he do when the distributor knows that what the customers is asking for is an inferior product? Should he allow the customer to make the mistake?”
The line between advisors and distributors is thin. When Moneylife spoke to a smart and ethical distributor of financial products, he said, “I will not be a surprised if (these) so-called investment ‘advisors’ work closely with ‘agents’ wherein the agents would give a pass-back of the commissions they earn to advisors who recommend customers to them. This currently happens as well, but it is more open as there is no restriction, where financial planners have tied up with agents of certain companies. Though the commissions are not disclosed, they earn enough for passing on a lead to an agent.”
What is happening in reality is that distributors sell for commissions but they also advice because customers ask for advice and without some advice and handholding, no selling can happen, especially financial products.
Moreover, the only mainline investment product that comes under SEBI regulation is mutual funds. Issues related to other financial products will be dealt with the respective regulators. As such, there would be no single body regulating investment advisors.
Investment advisor regulations have been discussed on and off for the past five years. In 2007, the SEBI published a consultative paper on “Regulation of Investment Advisors”. In 2008, the D Swarup Committee re-examined the issue and submitted its report in 2009. The report was revolutionary in its thinking prescribing all financial products have to become “no load”. Opposition to this report was vociferous. After much heat and dust, including dharnas and morchas by a section, the report was buried deeply and quietly. In September 2011, SEBI published another concept paper on the regulation of investment advisors, which led to much debate. Then in September 2012, SEBI come out with the draft regulation on investment advisors in India. Finally, in January, the market regulator came up with its regulations to oversee financial advisors, which came into effect from April 2013.
In short, post-April, anyone who wanted to provide investment advice had to register with SEBI and follow the rules contained in the new regulations. However, in the first five months, as per SEBI data, only 11 entities, including four institutions and seven individuals found it worth registering. Even, the institutions who have registered may have done the registration just in case to avoid problems in the future.
Here is the list of entities registered with SEBI as investment advisors...
Facebook reached a $20 million settlement agreement in the US. Under the agreement, Facebook can still post users’ content in ads but will give users more control over how their content is used
Facebook users included in sponsored stories on the social networking site who filed claims will receive $15 each as part of a $20 million settlement agreement approved by a federal judge this week.
Under terms of the class action lawsuit settlement approved by U.S. District Court Judge Richard Seeborg Monday, Facebook payouts will also go to attorneys and organizations involved in consumer privacy issues.
The settlement stems from a class action lawsuit filed in California by five users in 2011 who said Facebook shared their “likes’’ of certain advertisers without their consent in the form of sponsored stories. Facebook earned about $73 million in profits from the sponsored stories, or 60 cents per user included in the ads, according to court papers.
Some advocates objected to the agreement, saying it didn’t go far enough to prevent Facebook from engaging in the same conduct in the future, still doesn’t have sufficient protections for minors, and doesn’t sufficiently award users.
Under the agreement, Facebook can still post users’ content in ads but will give users more control over how their content is used. Children have to opt out if they don’t want to be used in Facebook’s sponsored stories, instead of being automatically excluded as some consumer advocates had sought.
Judge Seeborg said the plaintiffs in the case faced a hurdle of proving harm from the sponsored stories. He wrote:
Going forward, operation of the Sponsored Stories program will be more transparent, and Facebook users will have a greater ability to see how and when their activities result in generation of Sponsored Stories, and to limit recurrences. The minor subclass, and parents of minors, will have further opt-out options. The injunctive relief, while not as robust as some would prefer, contributes to the conclusion that the settlement as a whole is fair, reasonable, and adequate.
Read more here about social networking sites and user content.
Given the benefits of a weaker rupee and robust US pipeline, Lupin will not see any adverse effect on its earnings during FY14, says Nomura
Slowdown in India during the FY14F, is unlikely to have a material impact on earnings of Lupin given the benefits of the weaker rupee and robust US pipeline, says Nomura Financial Advisory and Securities (India) Pvt Ltd in a research note.
Nomura, following a meeting with Nilesh Gupta, managing director (designate) of Lupin, said the company does not expect market dynamics to change materially with changes in regulations and price controls.
According to management of Lupin, the industry is facing challenges in the near term due to the implementation of the new pricing policy in India. There is a tussle with the trade as they are not accepting lower margins on NLEM (National List of Essential Medicines) products proposed by the pharma companies. The industry as of now is not relenting but the issue is likely to be resolved in the near term.
Nomura said, the company management expects to sustain sales growth in the generic business at over 20% in the near to medium term. As per the company, the base is still low and hence growth is not a challenge. The management expects to maintain sales/ANDA as in the past.
In the US market, which is the most important driver of growth, Lupin expects to launch 15-20 products during FY14. The key launches for FY14 include Zymaxid, Trizivir, Niaspan, Lutera and Yaz. Zymaxid’s approval and launch is expected by management in the near term. For Trizivir, a district court decision is likely in the near term as per the company.
According to Nomura, the attrition in the sales force for Lupin is less of a problem today. It is currently at 15%-20%, compared to around 30% two years ago. The growth prospects from a longer-term viewpoint remains. The smaller players in the market place face bigger challenges but Lupin does not see that resulting in inorganic consolidation in the near term.