BackIndia’s mutual fund distributors scramble to comply with Sebi’s naming rules
A body representing mutual fund distributors, the Foundation of Independent Financial Advisors (FIFA) has written to Sebi asking for more time for distributors to comply with the new rules, till 31st March 2021
PremiumAn amendment to Sebi’s Investment Advisor Regulations prohibiting the use of words like advisor, Independent Financial Advisor (IFA), Wealth Advisor or ‘similar names’ by mutual fund distributors has gone into effect from 1st October. Although proposed as early as Feb 2020 and enacted into law in July the implementation of the amendment was deferred to October by the regulator.
A body representing mutual fund distributors, the Foundation of Independent Financial Advisors (FIFA) has written to Sebi asking for more time for distributors to comply with the new rules, till 31st March 2021.
As per Sebi rules, only persons or entities registered as 'Investment Advisors' under Sebi rules can use terms like IFA or wealth advisor to describe themselves. On 23rd September, Sebi issued detailed guidance about its investment advisor rules. Following the guidance, the Association of Mutual Funds in India (AMFI) sent a communication to mutual fund distributors (MFDs) specifying timelines for compliance. Distributors who are registered as individuals, partnerships or Hindu Undivided Families (HUFs) would have to comply with the rules by 30th September. Corporate distributors who need approval from bodies like the Registrar of Companies (ROC) would have till 15th October to file for a name change.
Such would have to complete the process by 31st December. “The Investment Advisor Amendment Regulations prohibit MFDs to use a name that is even ‘similar’ to the restricted Names. This gave rise to confusion among the MFDs on the scope of such ‘similarity’. In light of this confusion, not many MFDs endeavoured to proceed with changing their registered names," the FIFA letter said.
Mutual Fund Distributors in India are permitted by Sebi to provide ‘incidental advice’ and hence a mere change in name does not affect the services of MFDs. The FIFA letter was at pains to point this out. “On account of an abrupt change in the names of the MFDs and removal of any reference to ‘advice’ in the name, as mandated by the IA Regulations, the clients may be confused whether the MFDs will continue to provide the incidental advice. Therefore, prior to changing the name, the MFDs are duty-bound to sensitize the clients of the reasons for such a change in name and assure the clients that the services they receive from the MFDs will not be affected in any manner," it said.
A head of a large wealth management firm told Mint on condition of anonymity that it had approached the regulator for clarity on which names are prohibited under the Investment Advisor regulations for distributors. “We hope that Sebi looks at our communication sympathetically in light of the disruption caused by the Covid 19 pandemic," said Dhruv Mehta, Chairman, FIFA.
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