*SEBI to come out with working paper on selling practices of MFs * **
** ** *Distributors told to keep in mind the needs of the investor. * K.Raghavendra Rao Sneha Padiyath Mumbai, June 24 SEBI will bring out a working paper on mis-selling practices prevalent in the mutual fund industry, said Mr K.N. Vaidyanathan, Executive Director of SEBI, on the sidelines of the CII summit on Mutual Funds here. The paper will be brought out before the end of the next quarter, he said. “We are looking at a top down approach. In phase one, the outcome of this paper would be test implemented on institutional distributors who are very small in number but constitute approximately 60 per cent of the business,” he said. “In the next phase, we would target the large mass of IFAs. Mis-selling occurs when distributors are more interested in commissions than in selling the right product to the customer. This has been taken care of to a great extent by the abolition of entry load, said Mr Vaidyanathan. The second instance where mis-selling occurs, according to Mr Vaidyanathan, is when an investor is sold an inappropriate product that is not in sync with his risk profile and risk appetite. Risk profile is a third party evaluation of the risk an individual can take while risk appetite is an individual's discretion on the level of risk he or she is willing to take. The reason for the sale of an inappropriate product to an investor is the conflict of interest that lies within the role of a relationship manager, said Mr Vaidyanathan. “A person who is bothered only about his incentives will never be able to service a customer properly. Hence we need to evolve a system wherein all the relationship manager has to do is to match a customer profile with a product category that is prescribed for that particular customer profile.” A mechanism that recognises the risks in selling inappropriate products should be put in place. He advised distributors to align their selling practices by keeping in mind the needs of the investor. This would enhance their credibility greatly as selling a financial product is unlike selling a normal product. It entails forging of a relationship with customer over the lifetime of the product and this could span years. “Why don't you practise what you preach?” he asked distributors at the mutual fund summit. “On the one hand, you advise the investor to stay invested over a medium-to-long term horizon to generate sustainable income, whereas you want instant gratification in terms of upfront commission. Customers are more likely to display long-term behaviour provided you also do the same,” concluded Mr Vaidyanathan. -- You received this message because you are subscribed to the Google Groups ""GLOBAL SPECULATORS"" group. To post to this group, send email to [email protected]. To unsubscribe from this group, send email to [email protected]. For more options, visit this group at http://groups.google.com/group/globalspeculators?hl=en.
