UF submits strong representation on SEBI RIA proposal


United Forum's submissions to SEBI on its RIA proposals raise some pertinent points, which we sincerely hope the regulator will consider seriously. Here are some of the key points made:

  1. SEBI has defined lack of pre-sale suitability analysis by a distributor as a fraudulent activity. By SEBI now diluting its own suitability norms for distributors by insisting that they cannot conduct risk profiling and goal planning, SEBI is perpetrating "mandatory fraud" on investors

  2. The proposals can destabilize the current successful model of converting passive household savings into active investments and will create a retail advice gap

  3. Banks - which are the largest distribution channel - may exit MF distribution as housing separate MF advisory teams in subsidiaries may make the business unviable

  4. Subsidiary route for corporates to continue hybrid structures not only perpetrates the inequity between corporate and individual distributors, but also serves no practical purpose

  5. SEBI's proposals go against the explicit advice of its own IAB as well as the Government's Sumit Bose Committee report which extensively examined financial intermediation in a holistic manner

  6. Heightened commission disclosures and capping of upfront commissions have anyway minimized conflict of interest. There is really no need to act further on this issue.

  7. International case studies of migration to fee based models are not encouraging in their outcomes. Retail advice gap has increased and costs to investors have actually increased.

  8. A proposal to introduce Advisory Plans in mutual funds to enable calibrated migration of distributors into the RIA model in a phased manner over a decade.

To read the full submission, Click Here

UF has put forth a cogent case against the proposals. In meetings that SEBI Chairman has had with leading distributor associations, the key takeaways seem to have been

  1. a patient hearing,

  2. an acknowledgement of the challenge in discharging product suitability responsibilities without risk profiling and goal planning,

  3. but at the same time a keen desire to find a solution that actually separates distribution from advice, in a manner that does not destabilize business and hurt investors.

How SEBI proposes to accomplish this goal is what will now be keenly watched by the industry.

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