The market regulator is putting together guidelines for banks and national distributors to check mis-selling of mutual funds
Market watchdog Securities and Exchange Board of India (SEBI) is mulling further strengthening the mutual fund (MF) distribution system to prevent possible cases of mis-selling by banks and national distributors. Recently, the Association of Mutual Funds in India (AMFI) had sent a strict warning to national distributors like HSBC, NJ India Invest, HDFC Bank and Kotak Mahindra Bank who were actively engaged in the AUM transfer business. Incidentally, Moneylife had reported about such practices by national distributors earlier. (Read here: http://www.moneylife.in/article/8/3697.html). However, these entities in their reply to AMFI did not show any signs of strengthening their guard against mis-selling.
SEBI has now proposed that the risk appetite, investment objective and affordability of the customer should match with the product. Besides, national distributors and banks will have to seek an acknowledgement document from the clients before a client invests in a scheme. The acknowledgement document will contain the customer category and a statement of fee earned from a particular product. The market regulator has also suggested recording the calls of all relationship managers with the customers for auditing and has also proposed periodic auditing and compliance of these new norms.
SEBI is working along with the National Institute of Securities Markets (NISM) to formulate the guidelines. The working group committee will also include representatives from banks and national distributors.
However, industry experts believe that mis-selling cannot be completely ruled out.
“Some amount of mis-selling cannot be avoided in any profession. Some doctors prescribe medicines suggested by a pharmaceutical company. Some coaching classes don’t teach properly. In a democracy, nothing is mis-sold; it is either sold or not sold. If something is sold that means both parties have agreed. Mis-selling is more prevalent in Unit Linked Insurance Plans (ULIPs) and insurance but the regulator Insurance Regulatory and Development Authority (IRDA) is defending it. Mis-selling should be curbed by creating investor awareness by SEBI,” said a top official from a leading fund house.
“These recommendations are not feasible. All relationship managers will start calling from public booths. You can’t record conversations on mobile phones. It will deter national distributors from mis-selling but in some or the other way mis-selling will continue,” said a Mumbai-based financial planner.
Recently SEBI had asked fund houses to disclose all complaints received by them on their respective websites and in their annual reports by 30 June 2010 in order to increase transparency.
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Mis-selling start with the launching the filmsy Funds. Read the full article at http://www.indianmutualfundsonline.com
The more you reduce commission ,more mis-selling will be done....
here the sebi should at once bring out a common application form across all mutual funds at once.
this common editable application form , like kyc fom can be available on all mf websites , amfir websites.
this will greatly reduce the efforts of the distributors , registrars , mf houses as well as save printing expenses in crores annually for the mf industry as a whole.
one standard application form will greatly simplify the procedures and checking work etc at registrar office,mf office etc
also sebi should help the IFA people by offering online mf platform which was supposed to go live from 01/04/10.
because big distributors and banks will only chase big clients.
sebi needed to warn the four distributors as they were eating the aum's of small distributors by unethical means.
if IFA'S HAVE TECHNOLOGY they can very surely promote the cause of mutual funds.
their establishment costs are also very low as most of the individual agents operate from their home.
they are at present in dire need of such help , still sebi is asking help from national distributors and banks who are mostly interested in selling insurance which will not only cover their establishment cost but bring lucrative profits.
on the contrary sebi should prohibit banks and brokers from selling mutual funds as experience and statatics has shown that they are more interested in selling insurance.
even sale of mf through brokers has not helped much
sebi by not providing helping hand in the form of online platform exclusively for ifa category is only forcing the small distributors to step in the shoes of national distributors like nj india for technology and loose their individual identity.
kinly take up this matter with sebi.
thank you - manish d hathi.
ARN-31877.