The role of financial advisers, which has been something of a grey area ever since they took off, has been put firmly in the spotlight with the Reserve Bank of India calling banks to account for their wealth management services.
Financial advisory has been an area of debate since a Citibank employee duped several investors in Gurgaon a few months ago. The mushrooming number of high networth individuals in the country has resulted in a corresponding increase in the number of wealth management service providers, and stiff competition among them to manage these millions.
Financial sector regulators are looking to up their ante against the mis-selling menace prevalent in the financial services and advisory space, and RBI’s list of 29 questions to scheduled commercial banks and their subsidiaries on wealth management services (WMS) and private banking is a first step in this direction.
“The idea is to conduct a survey so as to first see all the practices and then take a view on what needs to be done,” said a senior RBI official who did not wish to be named.
The questionnaire, a copy of which is with Hindustan Times, has sought details of services and products offered to clients, whether the banks conduct risk profile check before advising products, the professional qualification of the officials handling WMS and their sales targets."I do not see anything wrong with it," said Abhay Aima, head of equities, private banking and third party products at HDFC Bank. "Since wealth management has become an important component of banking they might want to see how banks are doing it. It may also be a fallout of certain issues."
“It is a logical step towards converging on some sort of decision making in the regulation of advisors,” said Ranjeet S Mudholkar, CEO, Financial Planning Standards Board (FPSB) India. “However, investors views should also be taken to assess the quality of services offered to them.”
In what appears to be a scrutiny on the amount of money that banks make from financial advisory, the RBI has sought details on the total income/commission earned from WMS and the share of this in the total income of the bank.
Other than that RBI has also asked for details fee charged, upfront disclosure of fee charged to clients, number of frauds involved etc.
To plug loopholes of mis-selling of mutual funds, the SEBI had in June 2010 formed a sub-committee on right selling vs mis-Selling: building institutional processes.”