Noel Maye is the chief executive officer of the Financial Planning Standards Board, USA. For decades, he’s been promoting worldwide professional standards for financial planning. Financial Planning Standards Board Ltd (FPBS) is a non-profit association that develops certification and education programmes for financial planning organizations in various countries. Maye spoke about various issues related to financial planning in the US and India.

What are the trends in financial planning in the US and other countries?

Noel Maye, CEO, Financial Planning Standard Board, USA

The US is the leader in financial services sector but the state of regulation isn’t tight enough.

Sometimes when you are the first one out there, you have more obstacles to overcome. The US has 50 state security regulators, 50 state insurance regulators, various federal regulators, hence, there are 200 regulators trying to negotiate a position for consumer protection and the oversight of the market. The UK has one regulator, India has four-five regulators. Since newer financial markets have super regulator or a smaller number of regulators, conversation happens faster.

Your views, on global regulatory arbitrage, as in firms are trying to escape tighter regimes to looseones.

We have met International Organization for Securities Commissions a couple of times and it is clear that regulators are meeting globally and working together to have consistence approaches. There is an opportunity for arbitrage when something different happening between two or more situations and people come in between gaps and take advantage of it. As regulators work more closely at a global level, we will see more consistence approach to regulation.

Will FPSB lobby for tighter regulations?

We have met as a group to see where we would see value in the regulatory space. We think the term financial planner is largely unregulated; it’s widely misused and abused. We see some value as far as tighter protection of term financial planner goes. At some point, you will need to do something, know something and behave in a certain way, before you could hold yourself out as a financial planner. With title protection, we need professional body like FPSB India that can set standards, and enforce standards, raise professionalism, competency of practitioners, and combine with a tighter protection approach or be a self-regulatory organization (SRO) in this country, you will have that space protected. You define the space, set standards, protect the space and the consumer’s benefits.

In the US, planners and money managers fall under fiduciary law, but agents fall under standard fiduciary law.

There has been a lot of debate and discussion on the issue for last several years. In US, the standard of care for advisors was known as fiduciary standard of care and for those working in the larger financial institutions it is suitability standard—a lower standard for clients. Our organization and a coalition of financial bodies say there should be same standard of care. Right now, there is still discussion and debate.

What about the SRO model? Will it work?

What SRO model is really about is that—government is saying—we will look at the sector itself to establish appropriate standards, and enforce those standards. Whether it’s an SRO model, or a professional regulation model, our programme like FPSB India, and affiliates around the world, can bring value to the table. FPSB can bring professional body, professional oversight. In India, there could well be an SRO, or there could be a combination.

Which business models will work for delivery of financial planning in India? Fee-based?

It’s about a professional approach, putting the clients’ interest first and behaving a fiduciary-like obligation. It’s about discloser, transparency, and care. If all of those things are in place, I don’t really mind if someone works for a large firm or practices. If I understand the nature of recommendation, the cost of the recommendation, the cost of the advice, and any conflicts that exists, to some extent, I should be able to say, will I be able to work with a fee-based person, or will I be able to work with a commission-based person. Alternatively, more increasingly in the world, a combination of the two.

In some countries (India, Australia, UK) there is regulatory discussion to ban commissions. This regulatory position was taken, because the financial service industry didn’t step up to its obligations, to make the right recommendations, to work in the clients interest, the industry didn’t step up. Therefore, the regulator said we are going to step in. Ultimately, the market will decide what kind of compensation methods makes sense.

bindisha.s@livemint.com

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