Securities And Exchange Board of India (Sebi) Chairperson, Madhabi Puri Buch, made a strong case for differentiating between investing advisory and money management. In her address at the Association of Registered Investment Advisers (ARIA) conference she said that 35% of the investment advisers (IAs) are unregistered in India.
All IAs registered with the Sebi are mandatorily required to obtain membership registration of the BSE Administration & Supervision (BASL), according to the BSE.
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There are close to 1,300 IAs registered with the regulator, according to the Sebi website. Close to 900 are registered with the BASL.
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While she called for adding 1 million IAs, but added they need to be registered and compliant, should only provide investment advice and not trading calls.
“Sebi has seen investment advisors with a single registration running a 500-people call centre. I don’t know how many people they drove to suicide,” she said, adding that advisors should ideally discourage people from F&O trading.Buch emphasised that the regulator was aware of all illegitimate practices such as IAs running Portfolio Management Services (PMS), renting out their registration certificates, or fund houses giving commission to distributors classified as an ‘advertising expense’.
She pointed out that there cannot be one regulation for each instance, but there can be a “segmented approach”, and asked the “good guys” to support the regulator in drafting such norms.
RIAs are allowed to earn only from advisory services, but the regulator has observed that many of them run platforms facilitating investments in MFs directly. However, they are not allowed to earn fees through the distribution of financial products. “If you are managing someone’s money or portfolio, that is not advisory but a PMS,” said the Sebi chief.
She said that fund houses would pay such advisors/distributors commission, recording the same as advertising expense, and on inspection the regulator would find that the amount matched the commission received by the distributor. “The advertising revenue of that platform matches perfectly with the number of transactions they facilitated,” she said.
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During a Q&A session, she said the regulator would consider relaxing norms to hire fresh talent if the advisory firm was willing to take accountabily for their actions. This was in response to a statement that the required educational qualification and experience prohibits advisories from hiring freshers, making talent less affordable.
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