SEBI’s circular on due diligence to be done by large distributors is yet to be taken seriously. Some banks are not even aware of it!
Six months after the Securities and Exchange Board of India (SEBI) got a new chairman, the market watchdog issued a new circular that aims to regulate the distributors by putting in place a due-diligence process to be conducted by the asset management companies (AMCs). The objective is noble—to protect the interest of investors. The circular has stated that the due diligence process shall be initially applicable for large distributors. But are the distributors following these rules?
As per the SEBI circular, mutual funds are supposed to ensure that customer relationship and transactions shall be categorised either as ‘advisory’ or ‘execution only’. For the advisory function, the distributor will sell “only that product categorisation that is identified as best suited for investors within a defined upper ceiling of risk appetite. No exception shall be made.” For the ‘execution-only’ relationship, if “the distributor has information to believe that the transaction is not appropriate for the customer, a written communication be made to the investor regarding the unsuitability of the product. The communication shall have to be duly acknowledged and accepted by (the) investor.”
SEBI has also specified that “customer confirmation to the effect that the transaction is ‘execution only’ notwithstanding the advice of inappropriateness from that distributor be obtained prior to the execution of the transaction.” SEBI has also specified that the compliance and risk management functions of the distributor shall include a variety of elements such as review of products and the periodicity of such review; factors to be included in determining the risk appetite of the customer; review of transactions; exceptions identification; escalation & resolution process by internal audit; recruitment, training, certification and performance review of all personnel engaged in this business, etc.
All this is a lot of work, but the key question with any regulation in India is simple: What if the rules are not followed? Indeed, some aspects of the SEBI circular are impractical and have nothing to do with returns, which is the only thing that can serve customer interest. After all, if a distributor can recommend a lousy fund and still can easily prove that he has worked in the ‘best interest’ of the customer given the available information, this regulation is of no meaning.
In any case, we wondered whether these rules are being followed and in what form? We asked a savvy investment advisor based in Chennai for his feedback from the ground. His response: “I checked with some active advisors. They are not even aware of the August circular of SEBI. So there is no question of whether it is being followed. I spoke yesterday to a few bank relationship managers and investment advisors; they are not even aware of SEBI’s August circular.”
In contrast, here is the ground reality of how advice is manufactured by some large distributors, as found out by another smart distributor. “One investment advisor at a foreign bank told me that they charge 2.5% as fee for mutual fund investments. They have a ‘white’ and ‘black’ list. Even in the white list, different funds have different weights, based on which revenue credit would be given to the relationship manager. The weight is given based on the revenue tie-up the bank has with AMCs. The white or black or weight has nothing to do with an investor or his risk profile.” A big target of mis-selling is small businessmen with bank loans. One distributor reported to us: “Some of my SME clients who use the overdraft facility at State Bank of India (SBI) are forced to invest in dud products of SBI MF & SBI Life.” Is there any chance that SEBI would be even aware of any of these incidents and how?
In July, HDFC Bank ran its ‘Power of 3’ campaign: Promoting three funds of HDFC Mutual Fund. The relationship managers were asked to focus only on this product and sell maximum SIPs (Systematic Investment Plans). According to an independent distributor: “I hear that around 90,000 SIPs were sold by HDFC Bank on that month alone. Being a HDFC Bank customer, I happened to visit their branch for some work and I can see RMs (Relationship Managers) aggressively selling the ‘Power of 3’ to everyone including me. The RM told me that they have been told that July performance is critical for their annual appraisal and variable pay. The icing on the cake is that HDFC MF up-fronted the entire 3-year commission (upfront + trail) in one month itself and the entire revenue credit was given to RMs. What more an RM can ask for?” Now, in this case, the customer may not lose because HDFC has some very good funds. But imagine the ‘Power of 3’ campaign by LIC Nomura or JM Mutual Fund!
These episodes also show what the power equation today is. AMCs are really at the mercy of large distributors and SEBI’s move to regulate the latter through AMCs only means looking at the problem of mis-selling from the opposite end! Unless SEBI regulates large distributors directly, the 22nd August circular will have far less meaning than what is intended.
“Inflation is definitely a matter of concern. We shall have to see how to bring it down to a moderate level. I am constantly in touch with the RBI,” finance minister Pranab Mukherjee told reporters
New Delhi: Food inflation rose to 9.41% for the week ended 24th September from 9.13% in the previous week. Food inflation, as measured by Wholesale Price Index (WPI) was 16.88 per cent in the corresponding week of 2010, reports PTI.
The rise in food inflation has been attributed to costlier vegetables, fruits, milk and protein-based items.
As per data from the ministry of commerce, vegetables became dearer by 14.88% year-on-year during the week under review, while potatoes and onions grew more expensive by 9.34% and 10.58%, respectively.
Fruit prices went up by 11.72% while milk was up 10.35% and eggs, meat and fish became 10.33% more expensive.
Cereals became dearer by 4.57% and pulses were up 7.54% on an annual basis during the seven-day period.
“Inflation is definitely a matter of concern. We shall have to see how to bring it down to a moderate level. I am constantly in touch with the Reserve Bank of India (RBI),” finance minister Pranab Mukherjee told reporters here.
The monsoon was normal this year and the government had earlier exuded hope this would bring down food prices.
Overall, inflation in primary articles stood at 10.84% during the week under review, compared to 11.43% in the previous week. Primary articles have a share of over 20% in the WPI.
Inflation in non-food articles, which comprise fibres, oil seeds and minerals, stood at 10.77% for the week ended 24th September against 12.89% in the previous week.
Meanwhile, inflation in the fuel and power segment was flat at 14.69%, the same as in the previous week.
Headline inflation, which factors in manufactured items, fuels and non-food primary items, in addition to food commodities, stood at a 13-month high of 9.78% in August.
The RBI has already hiked policy rates 12 times since March 2010, to tame demand and curb inflation.
History will be recorded as a world before Steve Jobs and a universe after his demise. America may forget JFK, Elvis, Henry Ford, Bill Gates, John Lennon and Warren Buffett. But the Apple icon will always stand as a figure whose charisma blew away audiences, who was a tech oracle beyond compare—and a person who stared at death at its face, and won the ultimate battle
“When the music’s over, turn off the lights.” That’s Jim Morrison from a different era. That’s the era that Steve Jobs came from. His was a one-act play that will never stop.
The accolades and epitaphs are of course pouring in now from across the world. But almost none of then can do justice to the man who always did it his way—and understood what the customer wants. He overshadowed one of America’s titans, Henry Ford, when he dismissed the market research that the suits had done for the iPad. Henry Ford (in what may be an apocryphal quote) had once said that he did not care what colour a Model T was as long as it was black. But Steve threw the market research for the iPad into the trashcan after commenting on what would go on to become one of Apple’s blockbusters: “It’s not the consumers’ job to know what they want.” If this was hubris, many of today’s tech (and marketing) gurus could surely do with a lot of it.
Do we have to name the products that rolled out of Steve’s imagination? The gallery includes the iMac, iPod, iTunes, iPad and operating systems that hit Microsoft (and may lesser players) like a ton of bricks.
Like a few humans who knew that their mortal existence would soon come to an end, Steve Jobs knew that it was coming. “I have always said if there ever came a day when I could no longer meet my duties and expectations as Apple’s CEO, I would be the first to let you know. Unfortunately, that day has come.” This was his farewell to the company. And maybe only he knew that it was his final goodbye to the world.
“And now, the end is here;
And so I face the final curtain.
“My friends, I’ll say it clear;
I’ll state my case, of which I’m certain.
“I’ve lived a life that’s full,
I travelled each and every highway.
“And more, much more than this, I did it my way.”
It’s this Frank Sinatra song (My Way) that will be playing in a few million iPods across the world now. And all of us will read Jay Elliot (The Steve Jobs Way) with a sinking heart—and think about what he achieved, and what more he could have done.