Sebi moves to prevent kin of distributors from advising on financial products including MFs
Mumbai: With the aim of segregating mutual fund distributors from investment advisors, the Securities and Exchange Board of India (Sebi) on Tuesday issued a discussion paper barring immediate relatives of distributors from advising on financial products.
Relatives including spouse, parents and siblings of investment advisors will also not be allowed to distribute mutual fund products.
“There should be clear segregation between the two activities of the entity i.e. providing investment advice and distribution of the investment products/execution of investment transactions,” the Securities and Exchange Board of India said in the discussion paper. The paper is an amendment to a discussion paper issued on 22 June which defined who is a registered investment adviser and who is a mutual fund distributor.
“Based on the feedback received and to prevent the conflict of interest between “advising” of investment products and “selling” of investment products by the same entity/person, the proposals are revised,” said Sebi.
The regulator also said that by March 2019 distributors would need to decide whether they want to be advisors or distributors. Similarly, banks, non-banking financial companies (NBFCs), body corporates and firms willing to be registered as investment advisers will not be able to provide any distribution services in financial products, either directly or through a holding or associate or subsidiary company.
However, a distributor, while distributing mutual fund products, can explain the features of products to clients. The distributor would need to ensure that the product is appropriate for the client.
Sebi defines “appropriateness” as selling only those product categories that are identified as best suited for the customer.
As part of enhanced disclosures, distributors would need to disclose the list of mutual funds they are affiliated with and ensure that they are only providing information about the products that they are distributing.
“However, the client may also consider other alternative products, which are not being offered by them before making investment decision,” Sebi said in the paper.