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A Regulatory approach to financial product advice and distribution

Author

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  • 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.

Suggested Citation

  • M. Sahoo & Renuka Sane, 2011. "A Regulatory approach to financial product advice and distribution," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2011-029, Indira Gandhi Institute of Development Research, Mumbai, India.
    • Handle: RePEc:ind:igiwpp:2011-029
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    File URL: http://www.igidr.ac.in/pdf/publication/WP-2011-029.pdf
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    References listed on IDEAS

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    1. Neal M. Stoughton & Youchang Wu & Josef Zechner, 2011. "Intermediated Investment Management," Journal of Finance, American Finance Association, vol. 66(3), pages 947-980, June.
    2. James J. Choi & David Laibson & Brigitte C. Madrian, 2010. "Why Does the Law of One Price Fail? An Experiment on Index Mutual Funds," Review of Financial Studies, Society for Financial Studies, vol. 23(4), pages 1405-1432, April.
    3. John Beshears & James J. Choi & David Laibson & Brigitte C. Madrian, 2011. "How Does Simplified Disclosure Affect Individuals' Mutual Fund Choices?," NBER Chapters, in: Explorations in the Economics of Aging, pages 75-96, National Bureau of Economic Research, Inc.
    4. Xavier Gabaix & David Laibson, 2018. "Shrouded attributes, consumer myopia and information suppression in competitive markets," Chapters, in: Victor J. Tremblay & Elizabeth Schroeder & Carol Horton Tremblay (ed.), Handbook of Behavioral Industrial Organization, chapter 3, pages 40-74, Edward Elgar Publishing.
    5. Ajay Khorana & Henri Servaes & Peter Tufano, 2009. "Mutual Fund Fees Around the World," Review of Financial Studies, Society for Financial Studies, vol. 22(3), pages 1279-1310.
    6. Daniel Bergstresser & John M. R. Chalmers & Peter Tufano, 2009. "Assessing the Costs and Benefits of Brokers in the Mutual Fund Industry," Review of Financial Studies, Society for Financial Studies, vol. 22(10), pages 4129-4156, October.
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    Cited by:

    1. Monika Halan & Renuka Sane & Susan Thomas, 2014. "The case of the missing billions: estimating losses to customers due to mis-sold life insurance policies," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 17(4), pages 285-302, December.
    2. Renuka Sane & Susan Thomas, 2012. "What should regulation do in the field of micro-finance?," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2012-012, Indira Gandhi Institute of Development Research, Mumbai, India.
    3. Balasubramaniam, Vimal & Sane, Renuka & Sarah, Mithila & Karthik Suresh, 2022. "Do Indian financial firms have a robust Grievance Redress Framework in place?," Working Papers 22/365, National Institute of Public Finance and Policy.

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    More about this item

    Keywords

    Consumer Protection; distribution regulation; mutual funds; insurance; pensions; investment advice;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection

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