In India, you can't buy mutual funds from your investment advisor anymore

Mutual FundIANS
  • India's market regulator SEBI has made some sweeping changes to segregate investment advisory and mutual fund distribution that brokers have been carrying out.
  • As per the new rules, while the same individual or a firm can offer both services but not to the same customer.
  • This is a step in the right direction and will bring in transperance, says wealth advisory firm IIFL Wealth Management.
  • Over a period of time, people will make more money from investment advisory than by selling mutual funds.
India's market regulator SEBI made some sweeping changes last week to segregate investment advisory and mutual fund distribution that brokers have been carrying out. As per the new rules, while the same individual or a firm can offer both services but not to the same customer.

To reinforce the point, if your investment advisor can't sell you mutual funds but he can sell them to others who he/she doesn't offer advisory services to. The brokers and firms have three months to segregate their customers.

There is also cap on fees per client under an advisory model— 2.5% of the assets under advice or a fixed fee of ₹75,000 per year per family across all products and services provided. The market regulator has also set minimum net worth to be an investment advisor and their educational qualifications.

Every investment advisor must clearly document the needs of the customer. "This will improve the mapping oof products to clients will improve," Karan Bhagat, the Managing Director and CEO of IIFL Wealth, told Motilal Oswal. "Most individual/corporate distributors opted for the RIA (registered investment advisor) license to take direct feed from funds in order to understand activities under the client portfolio. With the changes, we expect RIA licenses to be surrendered and intermediaries retaining distributor relationships," he added.

The strategic intent will be to shift customers to an advisory model, and over a longer period, especially in the case of the super rich—people with investments of over ₹15 crore ($2 million)— the advisory model is likely to emerge as a big driver of business. according to Bhagat.

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