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Agents Join Hands

Changing regulatory scene and dominance by the big boys, small-time agents want to heard

On the back of the securities and exchange board of India’s (Sebi) allowing direct application and the abolition of new fund offer expenses, small-time mutual fund (MF) agents are feeling the heat. Some 150 plus small-time agents have now come together to form an association, called Financial Advisors Association of India (Faaida).

The plan
In 10 October 2007, when Sebi had issued draft investment advisor (IA) guidelines , it had stipulated that agents must be a part of a self-regulatory organisation (SRO). This SRO should be registered with Sebi and will be responsible for the standard of its members that are expected to sell a wide range of products. Presently only the Bombay and National Stock Exchanges are SROs and so only their members (stock brokers) can sell financial instruments. Even though the financial planning standards board of India (Fpsb) – a body of qualified certified financial planners (CFP) who sell a much wider range of financial products as against just shares that the stock exchanges’ brokers do - has applied for an SRO licence, that would still leave out around 50,000 active, small-time MF distributors and insurance agents.

As non- CFP agents – like the ones associated with Faaida – are not affiliated to Fpsb, Faaida was mooted to eventually become an SRO. Infact when Sebi had invited suggestions for its draft IA guidelines in October 2007, Faaida had suggested setting up of multiple SROs and had offered to apply for an SRO licence in future. Adds P V Subramanyam, trainer who is empanelled by Faaida to train its members: “Every small-time agent is not equipped to appear for the CFP course because of cost and competence required. Faaida is a platform for such agents to come together.” Presently, to become a member of FPSB, an agent needs to clear the CFP program – a 3-year certification course.

Is there a hidden agenda?
As Faaida aims to channelise the resources of more than 50,000 agents throughout the country, it would also boost penetration. If Sebi’s IA guidelines are finalised and with only Fpsb interested in becoming an SRO, these agents could loose their legal status and also livelihood.

Deep down however, market sources claim, it’s not just about investor servicing. Some agents who have so far avoided Faaida told Outlook Money that big distributors, especially banks, enjoy an upper hand with MFs on account of the huge business they bring. Hence, during new fund offers, while larger distributors successfully bargain for higher commission, small-time agents lack muscle. Sebi’s decision to curtail MF expenses has further skewed this relationship.

Faaida’s founding member, Hasan Wangde also hinted that it’s also about getting a voice. He says: “A MF cannot get away with shoddy treatment when it’s dealing with a bank. But small-time agents have no choice but to put up with MFs that may not service them properly.”

A long road
Even though Faaida has around 150 people on board – and still counting – it needs to have a corpus of Rs one crore to get an SRO licence, as per Sebi SRO guidelines, 2004. Besides, it needs to have adequate infrastructure; a costly affair, if Faaida intends to reach out to agents across the country.

Training is another issue. A significant chunk of Faaida members, as Subramanyam admits, are incapable of clearing the rigorous CFP course. But while the CFP course guarantees certain minimal standards, there’s no telling how Faaida’s own training program, once it gets underway, will shape up its battalion. Faaida also involves discount brokers – agents who supply forms with little or nil advice – who many believe do not deserve to earn as much commission as full-time financial planners (2.25 per cent, presently) charge.

Ultimately, once Sebi IA guidelines are in place, every SRO will have to ensure the quality of each of its members and ensure that investor interest is the top priority. Else, if Faaida’s interest, as sources suggest, is to mainly get a voice, investor interest will take a backseat.


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