28 November, 2016

What do you do when FDs are no longer lucrative...

FDs have been a weapon of choice for many when it comes to investing. Apart from being safe, these are uncomplicated products that are easily available in the friendly neighbourhood bank. 

But, alas, the party is coming to an end. FD rates are trending down and have gone below 7% mark.  With the tax & inflation biting into the returns, many are wondering what is left for them !

A real challenge especially for people in the retirement mode, who have a fixed corpus, income from which is dwindling. But, there are better options in debt investment space itself. Debt Mutual Funds present a great opportunity - people can worry less & earn more now ! 

You may be aware of it. But, here is a refresher which will be published on moneycontrol.com ..


Author  -   Suresh Sadagopan  | Founder | www.ladder7.co.in

#SureshSadgopan #FinancialPlanner #FinancialAdvisor #Fiduciary #LifePlanning #FeeOnly #HolisticAdvice #Ladder7

08 November, 2016

A good overhaul of investment advisory regulations

The investment advisory regulations of 2013 allowed a corporate entity to both distribute and advise, within itself, with proper segregation.
Abhijit Bhatlekar/Mint Abhijit Bhatlekar/Mint

The advisory regulations of 2013 by the Securities and Exchange Board of India (Sebi) were brought in to create a new class of advisers, who would primarily focus on offering advice on fee-only basis and assume a fiduciary responsibility. This was a major break from the past and a harbinger of things to come. But there were loopholes that could be exploited, and others that were open to interpretation. The new consultation paper—Consultation Paper on Amendments/Clarifications to the Sebi (Investment Advisers) Regulations, 2013—has addressed these concerns. Here are some of them.
Subsidiary: The investment advisory regulations of 2013 allowed a corporate entity to both distribute and advise, within itself, with proper segregation. This has practical problems. Within the same entity, information sharing between departments violates client privacy. This keeps happening in banks where privileged client information gets shared with the sales team, which then approaches clients to sell products.
This violates the principles of justice: while a corporate entity is allowed to do both the activities, the individual adviser has to choose between advisory and distribution functions. This issue has been addressed in the paper.
The transition period of 3 years (for companies and for banks governed by the Reserve Bank of India (RBI)) is excessive, when a mere 6 months were given to transition when the investment adviser regulations were introduced.
Consideration: The paper reduces the ambiguity surrounding ‘consideration’ too. Even if an adviser does not charge fees and she—or her subsidiary or associates—receive commission or get any economic benefits, it is still remuneration and she will have to comply with the investment adviser regulations. It is made clear that any monetary arrangement would come under the ambit of these rules.
Demarcation: The consultation paper also seeks to sharpen the distinction between advisory and distribution functions. So, a person or firm needs to decide whether they would like to distribute products or provide fee-only based advice. In this context, there is a lot of sound and fury about whether the time has really come for fee-only advisories. Changes have been happening the world over after the market meltdown of 2008. Financial services and have major implications on the lives of people. Hence, regulators have been closing in.
Fiduciary is the new standard that regulators prefer. They want advisers to act in the best interests of their clients, which is the correct way. In the US, they are looking at introducing a fiduciary standard on even retirement-product sellers. Transparency and true advice are gaining currency the world over.
Earning a commission is not wrong, but regulators increasingly want consumers to access proper advice before buying products. It’s time for financial advisers to change; to adapt to the emerging environment of advisories. Done right, it will not only work well for everyone, it will be immensely satisfying as well.
Incidental advice: This was another aspect of the investment adviser regulations that was being loosely interpreted. Some interpreted that if the income from the advisory is not significant, then the advisory practice itself is incidental. Some others felt that if they do not collect fees, then it can be termed incidental. Some professionals—like chartered accountants—felt that any advice they offer along with their practice, was incidental. Now, the speculation surrounding incidental advice has been put to rest. Anyone who wants to provide advice, needs to register with Sebi.
Designation: The regulator also wants to curtail the loose use of the terms ‘independent financial adviser’ or ‘wealth adviser’ by distributors. Those wanting to use such appellation now need to register. Those who want to continue distributing products, would need to use the term ‘mutual fund distributor’.
Satisfactory discharge of duty: There is again consternation about the fact that distributors would still have to provide a certain level of advice, but are not allowed to do so as mutual fund distributors.
My understanding is that distributors can do need-satisfaction selling. They could match client needs with the appropriate product benefits, which, in their case, would be satisfactory discharge of duty.
An adviser, on the other hand, would need to understand the needs, goals and the timing; analyse the client’s situation; look at her risk-bearing ability; examine alternative strategies and finally come up with an appropriate asset allocation and specific product options. These two are entirely different.
Clarity on automated advice: This consultation paper recognises automated advisories and their potential to offer advice in a cost-effective manner.
Robo-advisors, or any others hybrid models providing advice, need to comply with the investment adviser regulations. The consultation paper also specifies various controls for such automated tools that are used for giving advice or leading to advice. Such tools need to be fit and suitable for the intended client set. There has to be proper disclosure on how the tool works, and comprehensive system of audits needs to be complied with.
This iteration of the regulations offers many other clarifications and directives, which make for a much more robust regulation. Focus on advisories, fiduciary standard, segregation of functions and lowering the cost to clients have been given importance. The loopholes, that were exploited have been largely plugged. There is more clarity now about advisory and distribution functions. This is indeed good for everyone: the customers, distributors and advisers.

Author  -   Suresh Sadagopan  | Founder | www.ladder7.co.in

#SureshSadgopan #FinancialPlanner #FinancialAdvisor #Fiduciary #LifePlanning #FeeOnly #HolisticAdvice #Ladder7