Banks will need to create a subsidiary or a separate division for conducting wealth management services (WMS) according to the draft guidelines released by the Reserve Bank of India (RBI).
WMS is a boutique offering a combination of financial or investment advice, accounting, tax services, legal and estate planning that banks offer to customers for a fee.
"Banks may conduct all WMS activities either from a separate subsidiary or through a Separately Identifiable Department or Division (SIDD) set up for the purpose," according to the guidelines. "There should be an arm's length relationship between the bank and the subsidiary if WMS is being undertaken through the subsidiary," it said.
The segregation of wealth management is aimed to avoid the conflict of interest arising from the single entity conducting both the activities of advisory or fund management activity as well as marketing.
"I do not see any major impact on the stock performance of banks due to these guidelines," said Vaibhav Agrawal, vice-president, research, Angel Broking.
To discourage mis-selling of financial products, the draft guidelines said no incentive, either in cash or non-cash, from selling such a third-party product should be linked to the income of the staff selling such product. Also, the staff of the bank selling third-party products should not get such rewards from the third-party issuer.
Further, the guidelines state that any transactions above R50,000 should compulsorily be accepted through debit to the customer’s bank account, and not in cash or cheques of other banks.