“Advisors” avoid Sebi’s Utopian Investment Advisor Regulations

The deadline for registering as an investment advisor under SEBI Investment Advisors Regulations has expired on 21st and apparently only 70 have registered. Clearly, nobody wants to advise; they want to sell products are earn commissions, a reality SEBI failed to realise, despite clear writing on the wall, highlighted repeatedly by Moneylife

The October 21st deadline to register with SEBI as an investment advisor under the new regulations has expired. So, so far, how many have got their certificates? According to SEBI website, as on August, only 11 investment advisors got their certificates under the controversial Securities And Exchange Board Of India (Investment Advisers) Regulations, 2013 (Regulations).

According to Business Standard newspaper, as many as 70 investment advisors have registered with SEBI, but are yet to get their certificates. Still, this is an abysmally small number to service a country with millions of retail investors. Retail investors will continue to be serviced by distributors who sell products for a commission. Sebi had hoped that it would promote a new breed of intermediaries – investment advisors -- who will offer advice for a fee. It is apparent from the low turnout that in the six months, the grace period, since the Regulations went into effect on 21 April 2013, many advisors decided that it was better to give it a pass.

Moneylife had pointed out that is utopian because customers don’t want to pay for advice since the merits and demerits of the advice is known only later. Also, intermediaries make much more money in selling for commission rather than advising for fee. On the other hand, SEBI expressed their shock and surprise at the low turnout. Ananta Barua, SEBI executive director was quoted in Business Standard saying, "We did not make these regulations immediately applicable. We gave a lot of time...That is why I am surprised the applications received are very few." If Sebi officials were not living in an ivory tower, they would be less surprised.

Moneylife had written why and how SEBI's idea, though well-intentioned, were half-baked and possibly would lead to unintended results and low turnout. We also wrote that the new rules will only alienate many honest advisors, who earn an honest living by selling products and advice.

You can read out earlier pieces here:

Investment ‘advisors’ ignore SEBI; just 11 registrations so far

Investment Advisor Regulation I: SEBI’s ideas are, as usual, far from reality; may increase mis-selling!

The whole idea of the Regulations was to remove conflict of interest between and thereby reduce mis-selling, by separating product selling and advice. In other words, to be an investment advisor, you have to choose between selling a product or advice, not both. One honest advisor told Moneylife, “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.”

When this happens, it will be even more difficult for SEBI to clamp down on such incidents and would be harder to prove the links between advisor and agents. If the agent and advisor sit side-by-side in two desks of the same bank, so much the worse.

Another major deterrent is the cost of compliance. Most of the advisors are either single-person entities or small businesses. It is estimated that there are roughly 1,755 certified financial planners in the country. However, with the new regulations, there is more work that needs to be done by filing more compliance reports, audits and inspections -- all of which are time consuming, costs more (both in terms of overheads and labour cost). A single-person advisor will probably spend more time complying with SEBI's regulations than helping consumers with their financial plans or advising them on staying away from harmful products. This will affect the profitability of the business.

This is exactly what happened to mutual fund distributors when SEBI banned entry load. Most went out of business. Even more so, Moneylife found out that when SEBI introduced another cost measure known as total expense ratio (TER), mutual fund returns, over the long term, were actually LESS than the returns when entry-load was in effect. Basically, with the entry load ban and TER regulation, SEBI not only drove small distributors out of business but also made mutual fund investing unattractive for long term investors.

The long term ramifications of the Regulation are unknown to those who already have registered and will be known over time. But one thing we do know is that many small investment advisors are shunning from registering and possibly moving on to something else, much to the dismay of the consumers who badly need quality advice and products.





3 years ago

SEBI's job is to protect Investors and thus improve investment climate. However,what SEBI has done is to "kill" investors. It has 'destroyed' mutual fund industry. In stock market, it introduced lot of foolish measures e.g. periodical call auction system : You have to place your buy / sell order again and again as if the people and brokers have no other work to attend : transactions have all dried up, with brokers making losses. Hope, SEBI will wake up sometime and see reality.


3 years ago

In 2013, 3 stock exchange brokers are shutting down and about 30000 retail MF investor folios are being lost on a daily basis.

After such strangulation . . . will anything be left to regulate?


3 years ago

SEBI continuing their jokes in a series .First was periodic call auction.Even they realised that it is 101 % failure , they are not withdrawing it only because of their Ego . How retail investors will come back to a market controlled by an anti retail investor authority.


3 years ago

Indian bureaucracy have always lacked empathy and practical hands on experience in anything but babudom politics. Brilliant theory resulting in counter productive policies and practices. The very legend of India over the last 66 sordid years.

Bangalore Airport files FIR against Mallya, Kingfisher for non-payment

Kingfisher Airlines owes Bangalore International Airport about Rs208 crore towards user development and passenger service fees

Bangalore International Airport Ltd on Friday filed a first information report (FIR) against Vijay Mallya and his ailing Kingfisher Airlines for not paying user development and passenger service fees. According to BIAL, Kingfisher Airlines owes them about Rs208 crore.


"We have filed an FIR against Vijay Mallya and Kingfisher Airlines...," Assistant Police Commissioner Kamalpant was quoted by PTI as saying.


The FIR has been registered at BIAL police station on a direction by a magistrate court here, where BIAL had filed the complaint on 21st October, he said, adding that they received the court order yesterday.


In its private criminal complaint, BIAL has sought action under IPC Sections including 403 (dishonest misappropriation of property), 406 (criminal breach of trust), 418 (cheating) and 120 B (criminal conspiracy) with a direction to police to probe the matter.


BIAL contended that Kingfisher Airlines had collected user development fees and passenger service fees from domestic and international passengers during 2008-12, but after initial stage did not remit the money to BIAL as required under a Director General of Civil Aviation (DGCA) directive.


The DGCA circular of 22 September 2008 said that private airlines should collect user development fees and passenger service fees and remit it to the airport operator.


Hit by financial woes, Kingfisher Airlines has been grounded for the past one year.


Investing in mutual funds: Our online survey results

Our online survey on mutual fund investing shows that over 90% of Moneylife readers invest through mutual fund schemes and as many as 85% invest in equity diversified schemes. But there are very few takers for index schemes, the survey reveals

A survey conducted among Moneylife readers on mutual fund (MF) investing showed that over 90% of the 941 respondents use MF for investment. Most of the respondents seem to prefer diversified equity schemes (85%) while about half invest in equity-linked saving schemes. This shows that Moneylife respondents, who were equally distributed over all age groups from 20 years to 60 years, turn out to be investment savvy. As we mentioned in our Cover Story (Best Fund Houses for Equity Schemes), very few invest in index schemes, with just about 10% of the respondents having invested in such schemes. Similarly, very few have invested in multi-asset and hybrid schemes. Nearly 30% of the respondents invest in bond schemes and liquid schemes, while nearly one-third of the survey participants invest in gold exchange traded funds (ETFs).



Even though it is said that past performance is not an indicator of future results, it is the best way to judge the fund management of a scheme. Nearly 80% of the participants rate past performances as the most decisive factor for investing in a scheme. In the past, we have shown that schemes of the same fund house follow a similar investment strategy and thus display a similar performance. This survey showed that brand name of a fund house is fairly important to investors as well. Though, certain fund houses like HSBC MF and LIC MF are infamous for their poor performance. Expense ratio is an important factor to look at as well and a high expense could eat up the returns. Nearly 30% of the respondents felt that expense ratio is the most important factor to check before investment in a scheme. A significant majority feel that star ratings, research reports and studies by media houses are fairly important as well.


A large share (69%) of our respondents invest in equity schemes through a systematic investment plan, or simply SIP, which works on a rupee cost average plan. Here, the investors buy more stocks, when the prices are low and buy fewer stocks, when the prices are high. This reduces risk of large amount investing at a wrong time, at high prices. Nearly 70% of the respondents have invested in five or more mutual fund schemes, with over 15% investing in 10 schemes or more. Online investing has not caught on with investors. Majority prefer an electronic transfer through the bank or a cheque payment.



When it comes to selecting a scheme, majority of the participants rely on their own research before selecting a scheme. Nearly 40% of the participants take their advice from financial advisor or financial planners. Little over one-fourth of the participants go by media reports, while a marginally lower percentage of the respondents listen to the advice of the distributor.



Whom do investors consult while investing on mutual funds? What are key factors that influence their decision to invest in the mutual funds? We found that mutual fund distributors play a big role in creating awareness about mutual fund schemes and influencing individuals to invest in mutual funds. Probably, this is one of the main reasons fund houses pay huge upfront commissions. Nearly half the respondents were made aware of a scheme that they have invested in through a distributor. Media also plays an important role. Nearly 40% of the respondents gained knowledge about a scheme through television, print media and internet sites. Fund advertisements also have a significant influence in creating awareness among investors.




3 years ago

I have nothing good to say about my experience in investing in MFs - other than my 20 yr old investments in UTI tax saving schemes. Though I have profited from LIC's "Future plus" in recent years - all the others, regardless of their highfalutin shameless boasts, make money only for the fund houses.

I have trepidations in falling for these surveys.

Suiketu Shah

3 years ago

MF is one os the main tools to turn black money into white.Genuine investors have fled the MF product.If figures show MF's fall isnot that much its possibly because of inflow of black money being converted to white via MF route.

Wonderful article.

Anil Agashe

3 years ago

Excellent survey. Hope MF industry looks at this and learns some lessons. MFs need to be sold properly and there are many people who are still unaware of this investment option.

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