Panelists (from left to right) : R. Lakshman (Federation of Mutual Fund Distributors Association of India), Gurpreet Singh (DFDA), A K Narayan (IFA Galaxy), Dhruv Mehta (FIFA), Ramamoorthy Rajagopal (CAO, DSP Blackrock), Harshendu Bindal (President, Franklin Templeton) and moderator Vijay Venkatram, Wealth Forum

SEBI didn't mean much to mutual fund distributors until Feb 2009, when the regulator fired the first salvo by releasing a discussion paper that suggested a ban on entry loads. Life changed completely since then. Over the last 5 years, we've seen many efforts from the regulator to weed out mis-selling and to introduce more responsibility among distributors for what they sell to their clients. And these efforts are still continuing….

The biggest disconnect between distributors and the regulator is that distributors feel the regulator does not give a patient hearing to them before making up their mind on regulations that impact distributors directly. SEBI is clear that it has neither the intention nor the bandwidth to regulate thousands of distributors spread across the country. Their unwillingness to engage deeply with distributors perhaps comes from this. The distributor effectively is today nobody's baby - an unregulated entity who is however subject to lots and lots of regulations.

All this is about to change - hopefully for the better - now that we are going to have a Self Regulatory Organisation for mutual fund distributors. Whichever entity is finally given the responsibility to set it up - whether it is AMFI or FPSB or anybody else, the constitution is quite clear : 9 board members of which 5 will be SEBI nominees and 4 will be nominated from the industry. You will finally have a regulatory body that focuses exclusively on you and will have your representation in its Board. This is an opportunity that distributors must grab with both hands - you will have an opportunity to engage meaningfully with your own regulator and help set the agenda for your SRO in a manner that best serves investors and distributors interests. Its time to gear up to a new world of self regulation.

What can we expect from the SRO? What kind of developmental work would we like the SRO to undertake that can meaningfully strengthen the distribution business and help serve investors better? These were some of the issues debated at a panel discussion in the recently held Wealth Forum Platinum Circle Advisors Conference, on July 26th, 2013. Representing the IFA community were leaders of four key IFA groups - who together represented a wide cross-section of IFAs from across the country.

What do you see as the near term impact of the distribution SRO?

Dhruv Mehta, Chairman, FIFA

Its early days yet, but we must understand that the SRO is essentially going to be a SEBI regulated entity, which is clear from the Board constitution. I think in the near term, we must prepare ourselves for a tighter implementation of what is already in place. I think the distributor due diligence initiative may get broadened by the SRO. Licensing and renewal of ARNs will obviously move to the SRO. There would, I imagine, be a sharper focus on taking up mis-selling cases under the new regulations, conducting probes and resolving complaints of mis-selling, to give more teeth to the new regulations that have been put in place. I think the immediate focus will therefore be on the implementation aspects of all the new regulations that we have seen in recent years pertaining to distribution.

A K Narayan, President, IFA Galaxy

I think it's a step in the right direction. I think the biggest benefit for distributors is that we will have a regulator we can talk to and present our case to. For far too long, distributors have felt a vacuum as the dialogue with SEBI has simply not been there. This gap, I think, will be bridged, which is welcome. I think we should see a set of disciplinary processes being announced by the SRO. I think promoting high standards of business ethics will be very high on the priorities of the SRO, as this will directly impact investor confidence.

Gurpreet Singh, DFDA

I think the biggest impact which we should work with the SRO towards, is recognition of the distribution industry. Right now, nobody is taking responsibility for the development of distribution. We hope the SRO will work with us in this direction. The other near term impact I would hope for is clarity around the regulatory framework for distributors. Right now, there is this perennial fear - what next? What are we going to be hit with next? I would like the SRO to give a clear and stable regulatory framework, so that distributors understand the rules and regulations once and for all. And third impact I see from the SRO is promotion of ethical sales practices, which will be a very welcome move.

R. Lakshman, Chairman, Federation of MF Distributor Associations of India (FOMDAI)

I think a big issue we have today is that the starting point of most debates is mis-selling. We need to first define what is right selling and what is an appropriate sales process, what are the minimum steps any distributor must take for a sale to be deemed as appropriate or good. In any profession, you have exhaustive norms of appropriate practices and clarity on what is inappropriate. I think the SRO should first give distribution this clarity. Once this is done, and misconduct is clearly defined, the SRO must penalise misconduct and strengthen distributor education around good conduct, because ultimately, investors will come only when they are confident about dealing with a distributor, and without investors, we anyway don't have a business.

What are the longer term developmental goals you would like the SRO to take up?

R. Lakshman

I would like to SRO to focus on enhancing the distributor's ethics, etiquette and conduct. This will go a long way in strengthening a distributor's ability to win and retain client trust. The other big developmental role I see the SRO playing is in the distributor education arena and in providing high quality continuing professional educational (CPE) inputs to us.

Harshendu Bindal, President, Franklin Templeton

In addition to the education priorities that Mr. Lakshman has pointed out, I think one big area I would like the SRO to really work on is smooth implementation of policies and regulations. There are some very good intentions with which new regulations are put in place. But, when it comes to the detailed guidelines that seek to implement them , we often find that due to insufficient attention given to details and procedural aspects, what finally comes out as circulars often creates some confusion. A few recent examples that come to mind are the thinking behind simple products and EUIN and the manner in which they are actually getting implemented on ground. When the SRO comes into being, I would expect that it would take responsibility to convert regulatory intent into effective, efficient and practical on ground action, that actually delivers to the original intention.

The other big change I would like to see is that the SRO will listen to distributors, hear their point of view, understand their challenges and then come up with guidelines that meet the regulatory intent and at the same time, support business growth.

And finally, I really would like the SRO to review all the paperwork that an investor goes through in his overall investing experience and work towards simplifying it to enhance the customer's experience.

Ramamoorthy Rajagopal, CAO, DSP Blackrock

I think a simple mission that the SRO should adopt is to take up the task of enhancing investor confidence in mutual funds. Just as investors are today confident about banks and have full faith in RBI as an effective regulator of banks, the SRO must work towards promoting the same level of confidence in mutual funds. At the end of the day, we are all here only as long as investors continue to repose their confidence in us.

Gurpreet Singh

I would like the SRO to work on enhancing investor trust on distributors. The SRO must publicise that now MF distribution is a well regulated business, with appropriate checks and balances in place, and with a dedicated regulator to supervise its functioning. Investors must feel reassured by the SRO's presence and by appropriate publicity campaigns that the SRO should undertake. I also think distributors should work closely with the SRO to engage more with the media. We see many damaging articles appearing in media, but very little of positive coverage of the good work done by distributors. We need to have a more balanced coverage and I think the SRO can help us achieve this.

A K Narayan

Promoting the highest standards of business ethics in distribution has to be a very big priority for the SRO as only then will we be able to get investors to enhance their trust on distributors, and it is only when you strengthen your relationships with investors, will you be able to serve them better and succeed in your business.

Dhruv Mehta

The MF industry has just over 50,000 ARN holders while the insurance industry has over 20 lakh. I would like the SRO to take on a responsibility of not just supervising distribution, but actively working towards expanding distribution. It must be a stakeholder in our efforts to go from 50,000 to 10 lakh mutual fund distributors across the country.

Since right selling is clearly a focus area, one aspect that I think needs to be considered is about having an apprenticeship period where a new ARN holder works with an experienced distributor for some time, to get practical insights, through on-the-job training. It is only then that he can become more confident about advising clients on their investments. We see this happening in the CA profession, in the legal profession - I think its time we see this in ours too.

And finally, I would really like the SRO to take stock of all the regulations that have come in for distribution and reflect whether the pendulum has swung too much to the other side. In any product that is bought by a consumer, the principle is always "buyer beware", and all efforts are made to make information easily available to the consumer to help him make an informed decision. In MF distribution, we are moving into a "seller beware" environment - where the buyer is not responsible for seeking relevant information, but the onus is squarely on the seller to ensure that the buyer does not buy anything unsuitable from him. You can argue that in an advisory service, this is fair - but I think if we accept that there is a distinction between an advisory proposition and a distribution proposition, we cannot have a purely "seller beware" principle for a pure distribution service. Even in more developed markets like Singapore, buyers of investment products have a responsibility to become more aware, even as sellers are asked to adopt better sales practices. Having an environment where the buyer is absolved of any responsibility and where only the seller has all responsibility, is to my mind a case of the pendulum shifting too much to the other side. I would look to the new SRO to restore balance.

What do you think?

Wealth Forum will forward these deliberations to the new SRO, once it is formed, to enable it to get a good understanding of what expectations distributors have from their new regulator. Do you agree with the views expressed by leaders of these IFA associations and groups? Do you have any further thoughts on what you would like your new SRO to prioritise and work on? Share your thoughts will peers across the country, by posting your comments in the box below - its YOUR forum!

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