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Distributors not keen on investment advisor role

Fourteen months after the investment advisors? regulations came into effect, not many distributors have come forward to register themselves as advisors.

Fourteen months after the investment advisors? regulations came into effect, not many distributors have come forward to register themselves as advisors.

The number of investment advisors as of May 2014 stood at 156, as per Sebi data. The number has shown a gradual improvement over the last one year but is still abysmal, say experts.

?Some IFAs want to get registered as investment advisors and also continue to do execution-only distribution business. But there is no clarity on how to split the business,? said Vinod Jain, an independent financial advisor (IFA).

Unlike a distributor, an investment advisor has to record each and every recommendation made to the client and document it for posterity as part of Sebi’s compliance requirements. ?In the earlier execution-only regime, the onus laid with clients who signed documents saying they were responsible for the transaction. In the advisory model, the advisor is charging fees and is responsible for decisions taken for and on behalf of the clients,? said Jain.

A number of corporate houses have registered as investment advisors. These include Anand Rathi Financial Services, Barclays Securities, ICICI Securities, ICICI Venture Funds Management and Edelweiss Investment Adviser, among others. However, market regulator’s Sebi move to hike fees for corporates and LLPs might prove to be a dampener. Registration fees for this category has been hiked five times to R5 lakh from R1 lakh earlier, while application fees have been raised to R25,000 from R5,000 earlier.

Industry observers suggest it would make more sense for corporates to become investment advisors if channels such as insurance and real estate advise are brought under the advisory ambit. ?The current investment advisory regulations are only applicable only to MF products. If a corporate is also selling other products such as insurance, then convincing clients to pay separate fees for mutual funds can be difficult,? said a corporate distributor.

The Sebi (Investment Advisers) Regulations, 2013, were notified on January 21, 2013, and came into effect on April 21, 2013. The regulations were meant to separate the role of advisors and distributors. Registering as an investment advisor is seen to boost credibility as an advisor comes under Sebi’s purview.

The guidelines say the investment advisor shall not obtain any remuneration or compensation from any person other than the client. On other hand, distributors who work on an execution-only model earn commissions from AMCs but can’t charge fees from clients.

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First published on: 18-06-2014 at 02:05 IST
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