ear All,
Kindly find below a good article as appeared in Thefundoo.com for your reading:
Can The Regulator Impose A Fee Based Model?
Various steps have been taken of late by the regulator signal towards making this industry leaner from cost perspective, but is it ahead of its time or does it need to change its approach altogether?
In 2013, the AMFI introduced the investor advisor regulations with an intention of changing the rules of the game. Recently an FAQ came up regarding the same. This perhaps brought back to general memory that two years ago regulators asked the advisors to choose whether they want to sell or advise. At that time, the regulator probably ignored that there was a niche market for fee-based advising in India. Things haven't changed a lot since then and the market for fee-based advising continues to be very limited.
Is regulator trying imposing fee based model?
In this blog I just want to put up a few basic questions, starting with,“why is the regulator imposing thefee-based model on this industry?” I am not questioning the advantages of this model nor am I opining that we should never move to the fee-based model. I just have one basic question: what is the hurry when the industry is not prepared for it? Why can’t we wait for the industry to stabilize and then let the market forces decide what system will prevail?
Ahead of time?
The regulation came up in 2013 and till now only very few advisors have registered with SEBI.Is it not enough an indication that the industry needs time?
In addition to that, recent reforms such capping of upfront commission are being introduced in our industry indicating a shift that the regulator is intending to bring:a shift from the current commission-based model to a fee-based model.
Any market has two major forces, the buyer and the seller,and in this case the investor and the distributor/advisor. When the investor is not willing to pay fees for advice and the advisor/distributor is happy working for commission, whenthe mutual fund industry is picking up in India, does it make any sense to impose a fee-only model and hamper growth?
Regulators Rationale
The regulator’s rationale behind fee-based model is curbing mis-selling and guarding investor interest.
This is fair enough but why is it always about protection, reservation, guarding in India? Why can’t we focus more on empowering the investor rather than imposing bans and caps everywhere? Our focus should be on making the investors aware and educating him so that they can decide for themselves rather than staying guarded.
Way Head
I agree that world over, financial advisors survive on the fee-based revenue model, but that is because their market has attained a level of maturity. By market, I mean both, the investor and the advisor community. All the stakeholders there have come to this consensus based on market forces. In India too, the market will eventually reach that level of maturity and adopt a suitable revenue model.That suitable model could be the existing commission-based model, the regulator’s choice fee-based model, or a hybrid.
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