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Thursday, January 31, 2013

Should you become an ‘investment adviser’ or ‘distributor’ - points to ponder

Most IFAs tell that they would prefer to continue to operate on their existing models while others will wait and watch the situation
SEBI’s Investment Advisers regulations have laid out comprehensive rules for intermediaries wanting to becoming advisors. Most IFAs Cafemutual spoke to would prefer to maintain status quo. Among the most frequently cited reasons was that if intermediaries opt to become Investment Advisers, they have to forego future trail/upfront commission, which constitutes a major form of revenue. Opting to operating on the current model will allow intermediaries to charge fee as well as earn revenue from AMCs.
Below is a table with a preliminary list of important points to ponder:
Investment  Adviser
Decision point
Business model
Client centric
Perceived as product centric
Which model are you comfortable with?
Client fee
Can you charge your client a fee?
Trail commission on existing AUM
Not clear yet
Will your future stream of client fees offset the loss of commissions?
Trail/upfront commission for fresh assets
Will your future stream of client fees offset the loss of commissions?
Compensation limit
As negotiated with client
As negotiated with client & AMC
All put together, where can you make more money?
Compliance requirements (Client risk profiling, fiduciary responsibility, code of conduct, compliance officer)
Applicable  top  distributors only
Are you willing to commit time and resources?
Documentation requirements
Client risk profiling
Are you ready, willing and equipped to meet this requirement?
Regulatory ambit
SRO and respective product regulator
Respective product regulator
Are you willing to be subject to SRO and SEBI?
Capital Adequacy
1 lakh for individuals and partnership firms; 25 lakh for corporates
Can you meet this criteria?
Business Plan
Do you have a clear business plan for your company?
Code of Conduct
New code of conduct for advisors
Existing code of ethics laid out by AMFI

Investment Advisers are likely to be seen as committed and professional

How big is the advantage (both in business and psychological terms)?

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