Wednesday, November 11, 2009

Dooming Provisions before Indian Mutual Fund /Insurance Industry

Financial reform generally intends for a turnaround story with some fresh provisions although these provisions left different implications for diversely segmented components of industry.
A closer view on modus operandai of Mutual fund/ Insurance industry reveals the segmented interest of its components vis-à-vis the recently introduced regulatory provisions which try to demystify the role of intermediaries by simply cutting their edge of incentives from core of business.

Some fortnight back Security Exchange Board of India (SEBI) came out with a move to end the entry load regime in the pretext of investors welfare albeit that initiative was from reality since the prevailing nature of Mutual fund industry primarily influenced and shaped through bulk investment instead of petty investment.
So, investors are hardly going to benefited as they still have to bear the alternative charges that substituted in further course like, trail fees and entry load etc. In such scenario, the huge distribution network including of Independent Financial Advisors (IFAs) have caught in demure backdrop as their hitherto role are not going to proceed in future time, but this fallout is unlikely to be an universal quotient as the Asset Management Company (AMC) being the third pillar of Mutual fund businesses will surely avail the huge margin in current regulatory framework.

However, for the time being it’s seems daunting for AMC to cope with the emerging consequences from unconventional shifting of distribution pattern; so some temporary arrangement have been made although that is not suffice for raising the morale of persons involved in Mutual fond distribution.
Whatever would be the future shift on these matters; at least it’s an arch reality that again the interests of labour forces especially of unorganized sector have been compromised in the name of reforms.

By following same bandwagon for Insurance sector, meanwhile government have appointed a panel on investor protection and awareness under the Chairmanship of PFRDA Chairman D Swarup whose recommendations till now struggling for a consensus for investment advisors and agents selling financial products to usher them in changed regulatory framework. The apparent mandate of D Swarup committee is to synchronize the level playing field for investment advisors who hitherto have been championing for the great growth stories of Insurance businesses in India.
Proposal to remove commission on products such as ULIPS and allow investors to negotiate fees is acutely dampening for lakhs of advisors and their conventional bond (of employer-employees) with Insurance companies. Other plan to set up Financial Well Being Board of India (Finweb), an agency to write rules on the common minimum standards for sellers of financial products, and supervise a Self Regulatory Organization (SRO) of agents and financial advisors.
The mandate for Finweb seems exhaustive as every financial advisors needs to be registered with it; apart from that, establishment of an SRO on the line of ICAI is another move that creates complexities since advisors already have SROs to look after their businesses.
Regulatory changes are indeed essential but it needs to structured in proper sense and complete canopisation of all components plights; financial sector reform is inevitable but it’s implementation would required due diligence to cover all the core quarters.

It’s again a coincidence that marginal forces (Intermediaries) are being victimized from this new regulatory ruling that’s not at par with peoples expectations. Government must ensure the regulatory changes with following the proper care of mass welfare otherwise it would start to visualize as artificial attire with feeble original appeal.
Indeed economic activities without employment generation are nothing but futility especially when the claim of transparency stands lofty high.
Atul Kumar Thakur
November10th2009, New Delhi


  1. Atul,
    My take on this is quite different from yours though I am sure many would agree with the thoughts you have expressed.The vast majority of advisors were commission centric and are now forced to become customer centric.This is no doubt a disruptive change and will create heartburn but just as doctors should not make money by prescribing unnecessary tests,financial advisors should not employ themselves by hurting the wealth building activities of their customer. I have seen cases where an elderly relative who was 80 was sold a deffered annuity which would start giving him a pension he was 90.All to pocket around Rs50,000 as commisssion.I managed to get that transaction reversed but there are many such horror stories.No one sell term life insurance or the the new pension scheme even though these are great for customers.Just my two cents.Let the debate continue.It will be interesting to see how it turn out.
    Sanjaya Bhargava
    UFA Leader Co-ordinator

  2. Sir,
    Your views are completely true albeit my concern was more resonant for the rural segment where these gyus used to play crucial role neverthless,if the regulation would be well taken and adjust the employment loosess than I think there is no harm with its implementation.Sir are you in Delhi?...hope you are well.

  3. All well,I am in Delhi.You are right that this is a complex problem.
    Sanjaya Bhargava
    UFA Leader Co-ordinator

  4. Atul Sir,Your concern is great as financial crisis has already breaks and freezes the employment potential across the world...certainly needs a cautious approach to deal with lakhs of persons involved in this field...Umesh Agnihotry

  5. Really it may be a horendous possiblity.
    Aakansha Jha

  6. DEAR ATUL, whole story of the regulatory move aims at making intermediaries more accountable and delivering so that the MF INDUSTRY could grow reasonably....HEMANT JHA, IFA ,PATNA