Guest Post
For 22 years I have been helping investors design and nurture their portfolios using mutual fund schemes. I have also suggested fixed deposits- in banks, with the Post Office and with companies. However, most of my advice has centred on mutual funds. Mutual funds are a bona fide investment option- arguably the most versatile investment option there is, anywhere in the world. I am registered with the Association of Mutual Funds in India (AMFI). Thus, I have always positioned myself as an investment advisor.
But SEBI now has a problem with that because I am not registered with SEBI as an investment advisor. It wants me- and others like me- to stop calling ourselves as such. It could have just told us not to use the word ‘registered’. It could have told us to clarify that we only offer advice on mutual funds. No, no, no- it wants us to altogether stop calling ourselves as investment advisors.
That’s like telling a wood craftsman that just because he specializes in home furniture, he can only call himself a carpenter. I think that’s unfair and disrespectful. My lawyer thinks that’s illegal.
It isn’t easy to offer advice on mutual funds. I am a specialist in this area. I practically live, breathe, sleep mutual funds. At the risk of sounding arrogant, I declare that SEBI would be hard pressed to find ten individuals more capable than me to advise an investor on mutual funds.
When I asked for guidance on all of this from people in AMCs, their replies were useless. Rather than a solution, I got replies like: “What can we do? This is SEBI’s decision.” “It won’t change the way investors think about you.” Of course now AMFI has come up with a solution. The problem is that it is an idiotic solution.
Among other things, AMFI wants me (and all advisors registered with it) to clearly state that we are ‘distributors’. The people who came up with this idea don’t realize that ‘distributor’ is a term that is best understood by people within the mutual fund industry. What is an investor to make of my being a ‘distributor’?
Letting me call myself a ‘mutual fund advisor’ would have been nice. Letting me call myself a ‘mutual fund consultant’ would have been acceptable. Barring me from doing so and instead asking me to denote myself as a ‘distributor’ is ridiculous.
So, no thank you, AMFI- I will not label myself in that manner. Instead I will now officially designate myself as a ‘mutual fund specialist’. If someone at AMFI or SEBI has a problem with that- I pray that the wrath of God descend upon those who prevent me from honestly pursuing my chosen profession and correctly positioning myself.
See, I am a peace-loving person and I don’t like quarrelling. But the heart of the problem is that the people at SEBI don’t know how to really stop mis-selling. Because it is convenient, they have painted all mutual fund advisors- good and bad- with the same brush. They treat us with the same scorn that they have for stock tip marketeers. They suspect that we are guilty till proven innocent. And the ineptitude of AMFI in this regard hasn’t helped either.
The truth is that a much more amicable and meaningful solution could have been achieved just by understanding the advantages of the commission-based structure on which mutual fund advisors are compensated.
Thanks to that structure, when someone comes to me for advice on mutual funds, that advice is free. Yes, free. I don’t make money from the advice. I make money if and only if you invest via me. Most importantly, you get all the advice without any obligation to invest via me.
If someone has doubts about the schemes that I recommend, they can always ask me the reasons for my recommendation and also how much commission I get from those schemes. Everything is transparent. And like I said, until you are satisfied, you are under no obligation to invest via me.
If SEBI really wants to help investors seek quality advice, then it should urge investors to bear all of this in mind in dealing with any commission-based advisor. That will help investors much more than attaching labels to advisors can, or will.
There’s one more thing. It is because of the fact that commission is calculated as a percentage of AUM, that I can easily offer even a small investor the same quality of advice that I give big investors. The big investors are subsidizing the small investors and I tell my big investors that. Mind you, as I said earlier, because there is no obligation, a big investor is free to decide how much to invest via me.
I think it is high time SEBI and AMFI recognized all of this and accorded more respect to mutual fund advisors.
