The government is preparing to implement the suggestion made last week by an expert panel to introduce a common qualifying exam for financial advisors of all kinds ranging from tele-marketers of car and personal loans to sellers of mutual funds and insurance policies.
The proposed exam is aimed at testing their knowledge of not only what they sell, but also of all other financial products chasing the same customer. Officials from the finance ministry, financial regulators and market players will on Wednesday deliberate on the consultation paper titled ‘minimum common standards for financial advisors and financial education’ prepared by the D Swarup committee.
The idea is to crystallise the form of the proposed self-regulator for financial advisors, Financial Well-Being Board of India—which will set the benchmarks for the eligibility and standards for them, said a government official. The panel had recommended that the existing examinations in mutual funds, insurance and others should continue as different modules within the overall scope of the proposed eligibility test.
This is part of the government’s plans to prevent financial advisors from acting merely as the agents of one insurance company or one mutual fund house for which they work, while their job is to give customers insights into the relative benefits of competing products as well.
Under the law, financial planners are supposed to serve the end customer and not their employers since these middlemen get their pay either directly from the end consumer or from his investments without his knowledge. In practice, financial advisors act as the marketing agents of producers of financial productsmutual funds, insurance, loans etc—although the customer pays for his services. The finance ministry wants to put an end to this practice.
Finance ministry officials said the proposed self regulator may be asked to set the educational benchmark for all financial advisors including insurance agents, mutual fund sellers and retail loan pushers.
“Now many financial planners know only about the products they push and are ignorant about the competing products in the market. The proposed self-regulator may fix the benchmark for the examination that all of them have to pass, but sectoral regulators like Sebi or IRDA will be responsible for implementing the standards and holding the exams,” said an official, who asked not to be named. The D Swarup panel had also suggested that all upfront commissions now paid to a financial advisor from the investment made by a customer be removed.
Now, to be an insurance, one needs to pass 12th standard if he lives in a place with a population of 5,000 people or more. Passing 10th standard would suffice for those staying in other places.
To get the licence to sell, one needs to pass a pre-recruitment exam in life or general insurance conducted by the Insurance Institute of India and undergo 100 hours of training at the insurance firm for which he would work. Besides, aspiring insurance agents should also have the requisite knowledge to solicit and procure insurance business and be capable of providing the necessary service to the policyholders.
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