Commission-based and fee-based models are likely to run simultaneously for financial products, especially from the insurance industry, during the transition to the new regime.
While commission is associated with agents, the fee-based model is meant for financial advisors. The transition to the new revenue model may take 18 months, but could even stretch to 24 months.
A view would be taken on an alternate revenue model soon, D Swarup, chairman of the Pension Fund Regulatory and Development Authority, told reporters on Wednesday.He said the committee headed by him will submit its final recommendation to the government by the end ofthis month.
The committee won't fix a price band or a cap on the fees for financial advisors, Swarup said. When suggested that this could lead to arbitrariness, he said, "It's more arbitrary for the regulator or the government to fix a band or a cap."
Fees should be driven by market forces, like in the case of other sectors, he said. "Bilateral negotiation between consumers and advisors would determine the fee."The insurance industry has been up in arms since the government-appointed Swarup Committee released its draft report favouring a phasing out of agents' commissions by April 2011. The idea is to make insurance a no-load product by then, as the New Pension Scheme and mutual funds already are.
Indications are that only one revenue model would operate after the transition period.After an open-house discussion with industry representatives, including severe objections to the proposed model, the PFRDA chief's tilt was clearly towards a fee-based system.
"One has to take a view on whether the US model is for us to follow," Swarup said, while stating that the pure-fee model of Australia held much more promise than the combination of fee and commission-based models in the US. The UK is also in the process of shifting to a fee-based model.
Swarup likened the proposed reforms in the financial sector to those in the telecom industry. The telecom sector has registered significant growth in India, while tariffs have continuously decreased, he said, adding, the same is expected in the financial sector as well.
The final call on the committee's recommendations will be taken by the government and the financial sector regulators, including Irda. The Swarup Committee's mandate is to suggest measures to protect and educate investors, rather than looking at the business side of things, Swarup said. More than 90% people dealing in investment products do not know how mutual funds work, also very few know the difference between equity and debt, he pointed out.
Estimates suggest that there are 30 lakh advisors and sellers in the country, and the number of investors is more than 19 crore. In 2007-08, as much as Rs 14,704 crore was paid out as commission to agents. The objective behind bringing in a fee-based structure is to introduce transparency in the market for investors.
While commission is associated with agents, the fee-based model is meant for financial advisors. The transition to the new revenue model may take 18 months, but could even stretch to 24 months.
A view would be taken on an alternate revenue model soon, D Swarup, chairman of the Pension Fund Regulatory and Development Authority, told reporters on Wednesday.He said the committee headed by him will submit its final recommendation to the government by the end ofthis month.
The committee won't fix a price band or a cap on the fees for financial advisors, Swarup said. When suggested that this could lead to arbitrariness, he said, "It's more arbitrary for the regulator or the government to fix a band or a cap."
Fees should be driven by market forces, like in the case of other sectors, he said. "Bilateral negotiation between consumers and advisors would determine the fee."The insurance industry has been up in arms since the government-appointed Swarup Committee released its draft report favouring a phasing out of agents' commissions by April 2011. The idea is to make insurance a no-load product by then, as the New Pension Scheme and mutual funds already are.
Indications are that only one revenue model would operate after the transition period.After an open-house discussion with industry representatives, including severe objections to the proposed model, the PFRDA chief's tilt was clearly towards a fee-based system.
"One has to take a view on whether the US model is for us to follow," Swarup said, while stating that the pure-fee model of Australia held much more promise than the combination of fee and commission-based models in the US. The UK is also in the process of shifting to a fee-based model.
Swarup likened the proposed reforms in the financial sector to those in the telecom industry. The telecom sector has registered significant growth in India, while tariffs have continuously decreased, he said, adding, the same is expected in the financial sector as well.
The final call on the committee's recommendations will be taken by the government and the financial sector regulators, including Irda. The Swarup Committee's mandate is to suggest measures to protect and educate investors, rather than looking at the business side of things, Swarup said. More than 90% people dealing in investment products do not know how mutual funds work, also very few know the difference between equity and debt, he pointed out.
Estimates suggest that there are 30 lakh advisors and sellers in the country, and the number of investors is more than 19 crore. In 2007-08, as much as Rs 14,704 crore was paid out as commission to agents. The objective behind bringing in a fee-based structure is to introduce transparency in the market for investors.
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