India Regulates Financial Advice After Fraud Scandals

India Regulates Financial Advice After Fraud ScandalsFraud and poor advice standards have forced a crackdown on financial advisors in India.

All financial advisors will have to register with the Securities and Exchange Board of India (SEBI) and will have to take out a licence to trade.

Registered investment advisors will have to display a certificate of registration, although some, such as insurance advisors, will be exempt if they are signed up to their own professional bodies.

All advisors will have to meet set criteria to become registered

Legislation, which will become effective in April, will also detail how the advisors are to be held accountable for giving poor advice.

The move also calls for firms to separate their advisors from other business activities.

Price of advice

India joins a growing list of countries which have imposed stricter conditions on the quality of advice which is given which includes the UK, Australia and Singapore.

However, there are fears that India’s move towards a fee-based system for financial advice will price many potential clients with lower incomes out of the market. High net worth individuals are set to benefit the most.

Advisors will also have to disclose any fee received for recommending a financial product and whether there is a conflict of interest between them and the firm selling the product.

They will have to also detail the risks involved with any investment and maintain investment records, including those for conversations that have been held.

A statement from SEBI also makes plain the minimum education it is looking for from advisors. It said: “An individual who is registered under the new regulations and is offering advice should have a professional qualification or a post graduate degree.

New rules

“If not, they should hold a diploma in finance, accountancy, bank, insurance or business management.”

The new rules are a major change for the financial advice industry and advisors have six months to become registered.

Once they have done so, their registration is valid for five years and it must be renewed three months before expiry.

One of the tough new rules for compliance demands that advisors cannot make an investment that is contrary to the advice given to a client for at least 15 days after the advice was given.

SEBI first unveiled its intentions to regulate advisors in 2011 and then declared last year that any individual or entity offering paid advice would be regulated and its new regulations have been favourably received by the public and the industry itself.

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