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A Regulatory approach to financial product advice and distribution

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Author Info

  • M. Sahoo

    (Indira Gandhi Institute of Development Research)

  • Renuka Sane

    () (Indira Gandhi Institute of Development ResearchInstitute of Economic Growth)

Abstract

Financial distribution, where the distributor is the agent of both the product provider and the customer has been found to inherently work against the interests of customers, in the form of high service fees and perverse incentives in sales practices. This paper proposes segregation of financial advice from financial distribution. It proposes a Financial Advisers Bill, 2012, to promote the development of a market for advice. The Bill suggests that financial advisers be recognised as professionals and be regulated under a new statutory body called the Institute of Financial Advisers of India. The paper suggests that regulation of distributors continue to remain under the purview of product regulators. It outlines alternative models in which the distribution market may be organised. It also points out that the Ministry of Finance and the Financial Stability and Development Council need to play an active role in co-ordinating the setting of common standards for distribution across all product regulators.

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Bibliographic Info

Paper provided by Indira Gandhi Institute of Development Research, Mumbai, India in its series Indira Gandhi Institute of Development Research, Mumbai Working Papers with number 2011-029.

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Length: 53 pages
Date of creation: Dec 2011
Date of revision:
Handle: RePEc:ind:igiwpp:2011-029

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Keywords: Consumer Protection; distribution regulation; mutual funds; insurance; pensions; investment advice;

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  1. Ajay Khorana & Henri Servaes & Peter Tufano, 2009. "Mutual Fund Fees Around the World," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 22(3), pages 1279-1310, March.
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