The consultation paper on the review of the Regulatory Framework for Investments Advisor (IA) by SEBI is wonderful to step for the Investment Advisors. The consultation paper has made many things come under the proper framework. They have streamlined the fee model as well as the individual segment of offering both the verticals with a differential in between. Indian wealth managers are addressing a market with Rs 100 lakh crore ($1.5 trillion) of investible wealth, expected to double in the next five years. Hence this paper has huge significance for the Indian wealth industry.
The IFA industry needed mush support from the regulators and this paper offers the same. Transparency on fee part improves many hurdles and fair play opportunity for the community. As the Indian economy dreams to grow to USD 5trillion the per-capita income level of India will also increase. This will turn out to create more wealth for investment purpose.
The fee part is still not easily accepted by the retail client since the maturity of the market is still awaited. At the same time as the consultation paper state that there are complaints where IA has charged unreasonably high fees, forced clients to pay additional fees for buying weekly reports, charged extraneous fees like service fees, file handling fees apart from the advisory fees etc. This fee structure will save guard the ones who are fair in playing their advisory roles in the industry. This will safeguard from further damage of reputation for the IA community.
The IA guidelines will need more strength and more frameworks to uplift the community and morality of the IA segment. The proposal of scrapping down the revalidation through CPE program is a wonderful step as this will bring the knowledge level of IA to new heights in the coming years.
We all know that the knowledge level of the investor has taken quantum growth through the hands of the smartphone. In the new decade, we will witness much more jump in the knowledge and investment-related matter form the client end. Hence being an IA it is a huge responsibility to be updated with new theories and concepts evolving over the time on investment advisory. This change of the revalidation process will improve the knowledge level of the advisory model and hence will create a strong foundation for the Indian economy in the coming days.
One another important part which has been covered in the segment was that all client-facing operations such as sales, service relationship managers and client relationship managers etc. by whatever name called shall be deemed to be persons associated with investment advice. This is a big makeover for the service end desk job. The qualification of IA to this vertical will help to provide better services to the advisory model. The knowledge should not be restricted to the sales personnel but also to the one who is providing service at the back end. The point is well clear that if you do not understand the subject then you will never be able to solve the queries. The client will now get revamped service quality based on the lines of advisory.
The concept of Principal advisor wills a big boost for framing the long term structure of the vertical or organisation. The role will define the clear objectives and will lay and develop the foundation of a company matching the footsteps of the growing size of clients.
The consent part is another beautiful aspect recommended as a proposal in the paper. The paper states that IAs to provide a document to the client detailing the terms and conditions of the investment advisory services offered to the client. IA shall ensure that neither any investment advice is rendered nor any fee is charged until consent is received from the client on the terms and conditions.
This is a wonderful step so as the client and the IA both are clear at the beginning of the show so as the further dispute doesn’t arise. The rules as proposed are well designed keeping the huge potential growth of the industry in the coming decade. It has safeguarded the IA and IFA community and has designed a framework which is well balanced to serve and grow the industry.
The Indian economy is headed for huge growth in wealth of individual and hence the demand for IA will grow significantly. The average for Indian households, according to the 2017 report by the Tarun Ramadorai Committee on Household Finance is 84% investments in physical assets like gold and real estate. For the Indian rich, too, there have been historically a lot of investments going into physical assets. That is changing. This change will grow the demand for IA.
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