SEBI proposes norms for regulating role of investment advisors

The entities, which include banks and fund managers, would have to be registered with a Self Regulatory Organisation (SRO) as investment advisors, said the concept paper on Regulation of Investment Advisor issued by SEBI

Mumbai: In the backdrop of the alleged multi-crore fraud by a Citibank employee, market regulator Securities and Exchange of Board of India (SEBI) on Monday proposed to bar investment advisors from acting as agents for promoting financial products, reports PTI.

The entities, which include banks and fund managers, would have to be registered with a Self Regulatory Organisation (SRO) as investment advisors, said the concept paper on Regulation of Investment Advisor issued by SEBI.

“No financial incentives/consideration would be received from any person other than investors seeking advice. In case of advice regarding investment in entities related to the investment advisor, adequate disclosures shall be made to investor regarding the relationship,” said the paper on which SEBI has invited comments from stakeholders by 31st October.”

It further said, “The person who interfaces with the customer should declare upfront whether he is a financial advisor or an agent of the manufacturer.”

The paper further said that “conflict of interest in the financial product distribution space” due to the dual role played by the distributors raises doubt on their credibility to protect interest of investors.

“This (conflict of interest) is due to the fact that with respect to many financial products, agents receive their payments from two sources: commissions from the manufacturers, and advisory fees or other charges received from the investors,” it added.

The paper has proposed that investment advisors, or banks providing such services, should be regulated by an SRO, registered with SEBI.

It also said the advisors should be strictly identified as ‘investment advisors’ and not by names like wealth managers or private bankers. Besides, they should be highly qualified.

“This causes much confusion as to their role and responsibility. Hence the (proposed) regulations will provide that no person can carry on the activity of offering investment advice unless he is registered as an investment advisor under the regulations,” SEBI said.

Last year, a Rs461-crore fraud was unearthed at Citibank’s Gurgaon branch allegedly engineered by its global wealth manager Shivraj Puri.

SEBI’s proposed regulatory framework intends to regulate the activity of providing investment advisory services in various forms by a wide range of entities, like independent financial advisors, banks and distributors.

Duties of an SRO would include registering and setting professional standards for investment advisors.

“While the activity of giving investment advice will be regulated under the proposed framework through an SRO, issues relating to financial products other than securities shall come under the jurisdiction of the respective sectoral regulators...,” the paper added.


Will Reliance’s diversification strategy pay off?

Reliance’s stated aim is “transforming the DNA” from being a predominantly energy major to a more consumer-focused business group. Will it work?

Reliance Industries (RIL) is known to be moving away from a focus on its energy business, to create a larger and more diversified conglomerate. The emphasis is on a stable consumer-focused business to capitalise on consumer opportunities in the Indian economy. Of course, major investments would still be done in the energy & petrochemical business, but Reliance is keen to develop retail, financial services, telecom, and other infrastructure. According to published reports, total investments in all these ventures would aggregate more than Rs1,00,000 crore over the next five years alone.

However, these ambitious plans hit a block when its retailing business, Reliance Retail failed to take off. It had to shut down around 100 stores of its food-retailing arm, Reliance Fresh, after it ran into trouble in the northern heartland when it had to put up with a political storm.

Now, in a bid to revamp its retail business, RIL has brought in new management talent over the last six months to reinvigorate the segment. Media reports have indicated that RIL has hired former Wal-Mart executives, Rob Cissell (former CEO of the US-based giant retailer) and Shawn Gray (former COO). Reliance Retail is finally shifting its emphasis to eliminating supply-chain efficiencies and strengthening the back-end of its business—both of which were proven to be weak links in the past.

Again, RIL plans to focus on a mix of retail and wholesale cash & carry formats. It is looking at an initial rollout of 14 such stores in select cities across India under the name 'Reliance Market'. In a few cases, the existing hypermarkets will be expanded to merge with the new business model.

RIL is also looking at expanding its presence in the IT domain. IDFC, a brokerage & analyst firm expects that the opportunity provided by the broadband space "warrants optimism." The firm feels that with LTE (Long Term Evolution) formats gaining credence globally in the broadband space, the technology ecosystem to implement the system will be in place earlier than what people estimate. Again, data services as a percent of business for telecom companies are rising globally, and the same trend is expected to be replicated in India. But the question is if the number of India's broadband consumers will grow at a scorching pace. Last year, various reports indicate that India had only 12 million broadband subscribers. Does that justify RIL's optimism?      

RIL is looking at investing $5 billion into this venture, and it hopes that this business will deliver a return of potential sustainable EBITDA (earnings before interest, tax, depreciation and amortisation) of $400 million-$800 million. Though IDFC sees "long-term promise in the opportunity," this will be a tough task. A rough estimate indicates that broadband users will have to be around 150 million in around 5 years for this foray to yield substantial margins.  

RIL has recently announced entry into the financial services space (in addition to insurance) in a joint venture with US-based DE Shaw & Co, an international financial services firm which manages around $20 billion globally. The venture has indicated plans to enter into several segments of the financial value chain including (i) private and project equity, (ii) investment banking and brokerage, (iii) asset management and (iv) advisory services. But this space is crowded, and the markets-both local and global—are not out of the woods yet.

In the June AGM, RIL chairman Mukesh Ambani had promised that the company would become "debt-free" by 31 March 2012.

Though IDFC seems optimistic about RIL's future, not many seem to be convinced—the company's falling share price is surely an indication. It has a long way to go before it comes close to its debt-free goal.


MDL-Pipavav Shipyard JV for making warships put on hold

"The issue needs to be fully examined and settled before any forward movement takes place on this front," defence minister AK Antony said while addressing a meeting of the consultative committee attached to the ministry

New Delhi: In wake of complaints by private shipyards against a tie-up between Mazagon Dockyards and Pipavav Shipyard for building warships, defence minister AK Antony today put on hold a joint venture (JV) between the two entities, reports PTI.

The ministry has put on hold the JV till the time the government comes up with a new policy, a defence ministry spokesperson said here.

"The issue needs to be fully examined and settled before any forward movement takes place on this front," Mr Antony said while addressing a meeting of the consultative committee attached to the defence ministry here.

After MDL and Pipavav announced their JV, two other bidders, ABG Shipyard and Larsen and Toubro (L&T) questioned the selection process.

Both the companies, in their separate letters to MDL, said they have not been given a chance to respond to MDL's proposal to become the joint venture partner, despite making presentations to the defence PSU on 23rd August and submitting their expression of interest (EoI).

Observing that the JV should not be formed on nomination basis, the defence minister said they should compete for contracts.

Stressing on complete transparency in the procedure, Mr Antony said "we are treading on a new path and we would like to ensure that transparency is maintained at all levels".

Several members of Parliament attended the meeting including Naveen Jindal, Shivaji Patil and Harsh Vardhan.

Defence secretary Shashikant Sharma, secretary defence production Shekhar Aggarwal, Navy vice chief vice admiral R K Dhowan, DG Coast Guard vice admiral Anil Chopra, and other officials were also present in the meeting.


We are listening!

Solve the equation and enter in the Captcha field.

To continue

Sign Up or Sign In


To continue

Sign Up or Sign In



The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Magazine
Fiercely independent and pro-consumer information on personal finance
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
MAS: Complete Online Financial Advisory
(Includes Moneylife Magazine and Lion Stockletter)