Tata Motors to decide after studying Singur judgment

Tata Motors to study the judgement before taking action

"Tata Motors has learnt of the Hon'ble Calcutta High Court's ruling on The Singur Land Rehabilitation & Development Act 2011. The company will study the judgment and decide its next course of action." This was the statement issued by Tata Motors after the judgement.

The Calcutta High Court order had upheld the Singur Land Rehabilitation and Development Act. This was the verdict of Justice Indra Prasanna Mukherjee rejecting the Tata Motors' plea challenging the legislation.

In the late afternoon, Tata Motors was trading at around Rs156.40 per share on the Bombay Stock Exchange, 0.45% up from the previous close.

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RBI to release new series of coins

RBI is to release new coins of 50 paisa, one rupee, two rupees, five rupees and ten rupee denominations

The Reserve Bank of India (RBI) will shortly put in circulation new coins of 50 paise, one rupee, two rupees, five rupees and ten rupees denominations.

The coins of these denominations shall conform to new dimensions, designs and compositions, an official release said. These coins will be legal tender as provided in the Indian Coinage Act, 1906.

However, the existing coins in these denominations shall also continue to be legal tender, Vinod Kumar, assistant general manager, RBI, Chandigarh said.

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Investment Advisor Regulation - II: How SEBI’s do-gooding can be easily undermined

There is nothing stop an “agent” to pass back money to an “advisor”, which makes SEBI’s new idea nonsensical. If the agent and advisor sit side-by-side in two desks of the same bank, so much the worse

The Securities and Exchange Board of India (SEBI), in a view to curb mis-selling of financial products, has released a concept paper on Investment Advisor Regulations which would cover all financial advisors and wealth managers of banks as well. This would be done by creating a separate entity which will be registered under SEBI.

SEBI wants an intermediary to choose whether he wants to be an 'agent' or an 'advisor'. An agent would be able to charge a commission while a wealth advisor will charge a fixed fee. Separately, the Reserve Bank of India (RBI) is working to set up norms to regulate the advisory services by banks after the alleged multi-crore fraud at Citibank's Gurgaon branch came to light late last year. If all distributors including bank wealth managers are made to choose either to be an agent or an advisor, won't it be a better world?

Well, maybe it is an ideal world, but don't forget another possibility. Distributors would always find a way around the SEBI move.

SEBI has stunned the mutual fund industry with a concept paper under which advisors would only earn a fee from investors and won't sell any product for a commission. Earlier, SEBI had issued a circular under which an agent will be able to sell for a commission (subject to a disclaimer that he has not done any due diligence) and won't be able to advice. Consider the actual situation on the ground, a financial advisor asked, "How is an agent supposed to promote his product? Would he depend on the recommendation of the advisor?"

A smart and ethical distributor of financial products gave Moneylife the answer. 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." Expect this to increase, SEBI's noble intentions notwithstanding.

Another advisor who requested anonymity said, "Even if the above does not happen, how are agents expected to sell their products? Without providing investment advice on how their product would fit into a portfolio, they would not be able to promote a product at all. There would be just investment advisors and their client would then have to purchase the product directly from the manufacturers."

The worst hit from the proposal would be the "under-qualified" Independent Financial Advisors (IFAs). Most practically went out of business after the ban on entry load for mutual funds. Even if they continue as agents, how would they earn a living, considering the minimal commissions that they would earn and the declining retail participation in capital markets?

SEBI is seriously implementing the concept of separating advice from execution which will create unintended consequences as described above. As mentioned earlier, on 22nd August, SEBI had released a circular for mutual funds which stated that distributors delink their customer risk, investment objective and mutual fund scheme evaluation from their sales and relationship management processes and personnel.

Along with this, see what happens if a distributor were to categorise his transactions with customers, as 'advisory' or 'execution only'. The 'advisory' transaction is where a distributor offers advice on a particular product and recommends a product which is within the risk limits of the customer. Where no advice is provided, the transaction would be categorised as 'execution only'. However, the customer would have to provide a written communication that the transaction was 'execution only'—which he has bought at his own risk and understanding. The distributor is also to make a disclosure to the customer regarding the 'conflict of interest' arising from selling of such products.

How far this has been implemented by the distributors is unknown. We know of mutual fund investors who have not been asked to sign a letter like this, by their agents. As far as written communication goes, most investors take the agents' advice prior to buying a product—therefore some would refuse to give such a letter. Or they would give the letter, but it would have no meaning.

In any case, this move cannot prevent mis-selling. Though in an advisory transaction the onus would fall on the distributor, agents would take signatures on a document claiming the transaction was 'execution only'. Customers are after all known to sign on blank forms and signing without reading.

Finally, how would larger distributors like HDFC Bank function? That remains to be seen-but they can have one desk which "advises" and another desk that "executes". It would be the same organisation-and the same mis-selling—making nonsense out of SEBI's proposed do-gooding. It is the small distributors who would be worst-hit. In fact, if SEBI is really serious about curbing mis-selling, it should have had a speedier grievance redressal system with stiff penalties. SEBI has been quite lenient in dealing with offenders as Moneylife (alone) has repeatedly pointed out.

One other issue remains—the structure of the regulations themselves. Will a Self Regulatory Organisation (SRO) work? That is subject of the third part of this series tomorrow.

You may also want to read:
Investment Advisor Regulation I: SEBI's ideas are, as usual, far from reality; may increase mis-selling!

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COMMENTS

Michael

5 years ago

AGENT or ADVISOR
If I decide to be an agent instead of advisor does that mean I will not have to pay Service Tax !!!!

Michael

5 years ago

AGENT or ADVISOR
If I decide to be an agent instead of advisor does that mean I will not have to pay Service Tax !!!!

RNandakumar

5 years ago

From the way SEBI wishes to contole Mutual fund industry, the only solution looks to be for it open branches in all places with qualified staff and invite investors to visit them. Then there would not be any commission or misselling(assuming that all staff work very diligently) questions. Sebi becomes accountable only to itself. Customer complaints would then be dealt by another set of offices with an ombusman in it. Why not SEBI try this?

REPLY

Moneylife Team

In Reply to RNandakumar 5 years ago

AMCs dont have the capital. Even insurers use brokers and agents

Rooopsingh

5 years ago

Are Parmod bhai kyo itna passimist ho gaye ho?hindustan me to yeh purani system hai ki sare chairman or MD log political link se hi upar ate ahi,kabhi bihar lobby kabhi south indian lobby or kabhi punjabi lobby-to Desh ki or public ki fikra karne wala kaha se ayega-wo to apna kam nikalega or phir dusre dept me chala jayega-
isiliye to Air india scam,mineral ore scam,deffence scam or kya kya ginwau?
the core of the debate is that AC office inhaling beurocracy never faces ground reality and then they SHOW their foolish actions as very intelligent initiatives-
just show me any where if tobacco or pan wala or liquor shop owner ever tells his customers not to use them,it is the customer who has to decide what he needs-and it is duty of regulators to educate people from risks attached to investment options and it is the duty of AMCs to print in BOLD letters( as we see on cigarette packs-that tobacco chewing is injurious) about risk or various risk levels attached with some particular fund-why advisors or agents to be punished for products he never knows fully-like a cigarette vendor does not know how much nicotene is inside a particular brand-
Friend Pramod ji-i think i took a wise decision of adopting wholesale business of FMCG(which i was used to with industrial goods) products last Diwali and now i am very much satisfied in this -gaining regular business without much difficulty-
i decided it after analysing that REAL HARDWARE GOODS cannot be sent online like MF or financial products and they will always need some intermediatory-so
better find some other hardcore business and let SEBI do all damage it can do by its foolish actions.

REPLY

Nayan

In Reply to Rooopsingh 5 years ago

Not a bad idea. But

Parmod Sachdeva

5 years ago

In a mobocracy one should not expect logical decisions from AC rooms. Every one knows the where we are - a system on the brink of collapse.

Nayan

5 years ago

What about a qualified Financial Advisor only like CFP, CA, MBA Finance. Investor gets advice from such Qualified Financial Advisor only. No Agent Mode. On the basis of recommendation, Investor himself goes to shop and purchase the product. If only Investor requests, the advisor can arrange to buy the recommended product on another service charge.

SATYA

5 years ago

Regulation is only to supervise and only continuous education and monitoring will help the industry. After the entry load ban, most of them started to sell Insurance and Real Estate product. Agent/advisor mostly go to gether, whether it is insurance or real estate or share trading. If you want to buy 100 infosys an dealer can put the trade, only qualification he has to complete dealer module of NCFM. There should be minimum qualification to get into Capital Market like AMFI/NIS certification and continuous training. If client of any agent/advisor compliants, then necessary action from regulator is required to avoid mis selling. Doing more research whether he has to be an advisor or agent may not help, BUT CONTINUOUS TRAINNING/EDUCATION FROM NIS WILL HELP INVESTOR AND THOSE WHO ARE IN THE CAPITAL MARKET. To qualify to sell insurance products, only simple examination is required, but most of the saving comes to Insurance, PPF etc and very little to capital market from retail. Continuous education to investor/agents will control misselling.

Vikas Gupta

5 years ago

I agree with the write up that there should be a speedier grievance redressal system with stiff penalties but I differ in one point Is there any Grievance Redressal System present in our country either for investors or IFAs?
I am just giving you a recent example. I am working as a IFA in Rohtak from the last 6 years. Some of my investors had problems which is normal because where there are transcations, there arise the problems. I approach Local staff of Karvy MFS as Registrar to solve the problems. Sometimes I had to send the unsolved problems to AMCs to get them solved which highlighted many mistakes of 1Local particular Karvy MFS Personnel. He took it as his personal complaints. He then done a forgery as Registrar in my personal investment. I reported it to Registrar Higher Authorities & AMC but nobody took any action. I am having all the proofs of the forgery. I reported it to SEBI(SCORES). The case is still pending.
Yesterday, I deposited 3 App.s of Switchover of UTI MF at the same Local Registrar Office but I was shocked to know the reason of outright rejection of these app.s even without making an entry in KBolt that "KYC NOT SUBMITTED" while KYCs of all the Folios have been verified a long time back. I approahed AMC Personnel today morning. They rectified the mistakes & sent me the Corrected SOAs. I then reported the Registrar Higher Authorities about the Malafied Intentions of their Karvy Personel. There lies the CLIMAX of the Event. Then I received one more mail that all the 3 transcations are rejected due to Signature mismatch. This was their BRAHAMASTRA.
Can anybody tell me that where to complian the DICTATORSHIP of KARVYMFS as Registrar?

REPLY

Debashis Basu

In Reply to Vikas Gupta 5 years ago

Dear Mr Gupta,

I had sent your complaint to Karvy and I am told that Karvy took a lot of trouble to redress this. It would be nice to know if the problem is solved.

Debashis Basu

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