Industry Odisha Bureau, Oct 09: A Sebi working group has weighed letting individual distributors hold investment adviser licences too. The shift could widen their advisory business. But commission incentives and compliance costs raise hard questions.
Selling a mutual fund and advising on one are different jobs in India. Distributors earn commissions from fund houses. Registered investment advisers charge clients a fee for advice. The Securities and Exchange Board of India is now weighing whether individuals can do both. No final decision has been announced.
What Sebi is weighing
A Sebi working group, set up this year, has examined the question. Two people familiar with the matter confirmed the discussions. The group’s wider task is to streamline rules for distributors and investment advisers.
Under the proposal, individual mutual fund distributors could hold an RIA licence too. Institutions and other non-individual entities can already hold such dual licences.
Where selling meets advice
An MFD’s income is tied to the products it distributes. Many also offer incidental advice on other financial products. Yet the scope of that advice has never been clearly defined.
RIAs, by contrast, charge clients fees and may advise beyond mutual funds. The two groups also differ sharply in size. India has more than 100,000 MFDs but only 1,048 RIAs.
A wider advisory role
Dual licensing could formally codify the advice distributors already give. It could also help individual MFDs grow into advisory services.
Distributors argue that selling funds without reviewing a client’s wider portfolio is often impractical. The issue sharpens when investors hold several financial products. An equity distributor may advise on equity, an insurance distributor on insurance. Investors may then juggle different intermediaries for different needs. One person familiar with the matter said investors need one adviser reviewing the whole portfolio.
The commission question
Critics see a clash of incentives. A senior RIA, speaking anonymously, said dual licence holders would wear two hats. As advisers, they are expected to advise without commission-driven motives. As distributors, they earn commissions on the products they sell.
That could tempt a higher-commission recommendation over a more suitable option, the adviser warned. A direct-plan alternative, for instance, may not earn the distributor the same commission. Over time, the adviser said, the line between fiduciary advice and distribution could blur. These remain potential risks, not proven misconduct.
The cost of two licences
Kartik Sankaran is an MFD with platform Happyness Factory. The platform manages assets worth more than ₹7,000 crore. He said an RIA licence would raise costs and compliance burdens for individual distributors. Small MFDs would need compliance officers, extra documents and more record-keeping, he added.
Those costs, however, would apply only to distributors choosing to offer advice.
Another anonymous RIA doubted dual licensing would fix the core problem. One person may struggle to run two businesses and two compliance regimes, the adviser said. Juggling two sets of incentives without conflicts could prove difficult too.
What comes next
Sebi chairman Tuhin Kanta Pandey first mentioned the working group in March. Sebi executive director Manoj Kumar has since said its recommendations were submitted. He said final guidelines would follow soon, Cafemutual reported on October 4. Sebi did not answer emailed queries on the proposal.
The bigger test
Dual licensing could widen what individual distributors may offer. But broader permission does not guarantee independent or conflict-free advice. How Sebi handles commissions and compliance will shape the final framework.
