Financial advisers may no longer be able to sell you products on a whim or fancy. A high-level committee of the finance ministry on “Financial Investor Awareness Initiatives” has decided that those selling financial products must follow a clear set of common rules.
It has also suggested penal action to bring discipline among the sellers who violate the rules.
“There is a need for a set of common rules to ensure ‘suitability’, that have to be followed by anybody who sells a financial product,” a discussion paper of the committee meeting held on March 23, a copy of which is with Hindustan Times, said.
One of the suggestions made by the committee is that “a suitability criteria with ex-post liability on the seller is needed to discipline sellers of the financial product.” While details of the rules are yet to be worked out, practices followed in some developed countries like UK and Australia may be adopted.
Discussions on advisory regulation have been on for a while now as mis-selling of products is a common practice in the financial services industry.
The finance ministry committee on Financial Investor Awareness Initiatives, chaired by Bimal Julka, DG (currency), also seems to have accepted that the industry has lost the trust of investors, and needs to build a consensus among stakeholders including regulators to counter this ‘trust deficit’.
While the government and regulators have been looking at ways to improve financial literacy among the masses, albeit without much success, the committee has decided to explore the scope for introducing financial literacy as a subject in CBSE school syllabus. It was also suggested that financial advisers can be incentivised to look after the financial well being of the customer.
An earlier advisory committee set up by the Securities and Exchange Board of India (SEBI) had proposed a series of stringent norms, to be institutionalised within banks and other distribution channels.