Sebi looks to leash investment advisors

Sebi move follows a Rs 461 crore fraud that was unearthed at Citibanks Gurgaon branch.

The Securities and Exchange Board of India (Sebi) has proposed that entities,including banks and fund managers,and persons who act as investment advisors would have to be registered with a Self Regulatory Organisation (SRO) which in turn will be registered with Sebi. The SRO set up for the regulation of investment advisors will follow the rules and regulations laid down by respective regulators for products falling in their jurisdiction,including but not limited to,suitability and appropriateness of the products,Sebi said.

No financial incentives or 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 a Sebi paper on financial advisors on which Sebi has invited comments from stakeholders by October 31.

The Sebi move follows a Rs 461 crore fraud that was unearthed at Citibanks Gurgaon branch allegedly engineered by its global wealth manager Shivraj Puri last year.

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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.

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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.

Sebis 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.

The proposal

* The person who interfaces with the customer should declare upfront whether he is a financial advisor or an agent of the manufacturer

* Advisors should be strictly identified as investment advisors and not by names like wealth managers or private bankers.

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* No financial incentives or consideration would be received from any person other than investors seeking advice