An inappropriately purchased financial product might impact an individual investor’s confidence in capital markets. The financial industry’s commission-based business model is frequently blamed for ‘misselling’. Financial advisors and distributors are notorious for recommending products with fatter commissions and not necessarily the products that would be suitable for their client’s risk profile and investment goals.
The recent decision of the Securities and Exchange Board of India (SEBI) to issue a framework for the administration and supervision of investment advisers is a welcome move for the protection of investor interest. SEBI has appointed BSE Administration & Supervision, a wholly-owned subsidiary of BSE as Investment Adviser Administration and Supervisory Body (IAASB) for a period of three years from June 01, 2021.
IAASB’s responsibilities include supervision of investments advisors (IA), grievance redressal from investors as well as from IAs apart from monitoring activities by obtaining periodical reports from IAs.
The market regulator has been on a mission to bring more changes to bring more clarity and transparency for the investors. Further to avoid a conflict of interest arising from the existing structure, the market watchdog has been consistently amending the Investment Advisers Regulations 2013 Act.
This year in January 2021, SEBI banned three stockbrokers and their directors from providing unauthorized investment advisory services to investors. The three businesses were found to be acting as investment advisors and collecting subscription fees from investors for stock recommendations without acquiring a registration in their own names as required by the Investment Advisers (IA) standards, according to SEBI.
With IAASB coming into the picture such unfair business practices would hopefully be prevented. This is a welcome step by the market regulator. But now that the framework has been released and an agency appointed to monitor and regulate investment advisors, SEBI must ensure that the measure is implemented in letter and spirit.
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