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:

Parameter	Investment  Adviser	Distributor	Decision point
Business model	Client centric	Perceived as product centric	Which model are you comfortable with?
Client fee	Yes	Yes	Can you charge your client a fee?
Trail commission on existing AUM	Not clear yet	Yes	Will your future stream of client fees offset the loss of commissions?
Trail/upfront commission for fresh assets	No	Yes	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)	Extensive	Applicable  top  distributors only	Are you willing to commit time and resources?
Documentation requirements	Extensive	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	NA	Can you meet this criteria?
Business Plan	Yes	No	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
Branding	Investment Advisers are likely to be seen as committed and professional		How big is the advantage (both in business and psychological terms)?