Live mint

Can distributors give some advice?

The wide definition of the term ‘appropriateness’ in the Sebi paper would mean that a distributor can continue to perform nearly all the activities of an adviser—identifying the customer’s objectives, resources, investment time horizon, risk profile, and preferences; and explaining the product features.

Assuming he narrows to five products that suit the client, the only activity that a distributor will now not be allowed to do is recommend a specific product. But even recommending a fund could be easily done under the guise of ‘explaining product features’; an activity permitted to distributors under the proposed regulations.

Unless Sebi resists the lobbying by vested interests and limits the activities of a distributor to merely highlighting product features (as in its earlier papers), its efforts to segregate distribution from advice will come to naught. Any suitability assessment should be the exclusive domain of Registered Investment Advisers, who are required by law to operate as fiduciaries, and are subject to a higher, ethical customer-first standard.

To address legitimate concerns on pricing smaller investors out of the financial advice market, Sebi could permit distributors to give basic investment advice to ‘retail investors’; defined as those investing, say less than Rs. 2 lakh per year, across all mutual funds.

Kunal Bajaj, chief executive officer and founder,