Govt to adopt common qualifying exam for financial advisors

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.

Source: http://economictimes.indiatimes.com/News/Economy/Govt-to-adopt-common-qualifying-exam-for-financial-advisors/articleshow/4989182.cms

MFs need to improve on transparency, disclosure

The recent move by the Securities and Exchange Board of India (Sebi) banning entry load and capping exit load, among other things, has turned the spotlight on the possible improvement in rights of mutual fund (MF) holders in the country. Sure, we already have regulations in place.

But according to industry observers the Sebi move points to improvement in investor rights. “The rights protection of mutual fund holders have been always been on top of Sebi agenda. It has also moved a great deal in the last few years towards improvement in this direction,’’ says Devendra Nevgi, an independent investment consultant.

Here are the rights that are available to an MF holder as per Sebi Regulations on MFs:
A) An investor is entitled to receive statements of accounts in 6 weeks from the date of request for unit certificates.

B) He also has a right to receive information about investment policies, objectives, financial position and general affairs of the scheme.

C) He is eligible to receive dividend within 42 days of declaration, and the proceeds within 10 days from the date of redemption or repurchase.

D) Trustees are bound disclose to unit holders any information that could adversely impact investments.

E) With prior Sebi approval, 75% of the unit holders can terminate the AMC of the fund.

F) They can also pass a resolution to wind-up the scheme.

G) An investor can also send complaints to Sebi, who will take up the matter with the concerned MFs and follow them up till the issue is solved.

Does that mean that everything is hunky dory with MFs? To a certain extent, say experts. “No fund house will take an investor for granted, as nobody wants bad publicity. Also, fund houses know that the Sebi is extremely serious about investor protection,’’ says an MF advisor who didn’t want to be quoted.

Nevgi says: “If an investor writes to Sebi about not getting dividend or redemption proceeds on time, the regulator takes it very seriously. Even mutual funds treat those matters seriously. So those kind of complaints are very uncommon in the industry,’’ he says. However, he feels there is scope for more improvement. “When it comes to quantitative rights like receiving dividend or redemption cheque on time, things are very much in place. However, when it comes to transparency or frequency of portfolio disclosure, things can still improve.’’

The view is shared by many others. “Transparency is a big issue. There are lot of problems like schemes with strange and funny names. Also there are lot of schemes which are repackaged where the investment objective and investment portfolio are not close to each other,’’ says Nevgi. “Complex schemes are the main issue. Name of the scheme or investment objective can be interpreted the way the manager wants. This can confuse investors. They would realise they invested in a wrong scheme only when things go wrong,’’ says an expert.

Another area which most experts feel could improve is frequency of portfolio disclosure. They point out that since fund houses have the choice of making the disclosure of portfolio twice a year, many fund houses are lacking in this aspect. “Some funds don’t even bother to send detailed portfolio. Investors also should be blamed as they don’t take it seriously. In fact, they should demand portfolio since that is the only way they will come to know how their money is invested,’’ says the MF expert.

Source: http://timesofindia.indiatimes.com/news/business/india-business/MFs-need-to-improve-on-transparency-disclosure/articleshow/4992707.cms

Axis AMC, two others in race for DBS Chola assets

Negotiations are at an advanced stage and the deal could be closed soon; price likely to be around Rs80 crore

Axis Asset Management Co. Ltd, Indiabulls Financial Services Ltd and L&T Finance Ltd have emerged as the top contenders for the assets of DBS Cholamandalam Asset Management Ltd.
Edelweiss Capital Ltd is investment banker for the deal.
A DBS Cholamandalam executive, who spoke on condition of anonymity, said negotiations are at an advanced stage and the deal could be closed soon.
The price is likely to be around Rs80 crore, said an investment banker, who did not want to be identified.
Axis Asset Management is the new kid on the block in the mutual fund business; it has been promoted by Axis Bank Ltd. The bank received the Securities and Exchange Board of India’s (Sebi) nod for entering the mutual fund business last week. L&T Finance has not yet moved the capital markets regulator seeking its nod for starting an asset management company (AMC), while Indiabulls is awaiting an approval.
Rajiv Anand, managing director and chief executive of Axis AMC, said: “We are happy to look at acquisitions if the deal comes at the right price and matches our investment philosophy, but we would not like to comment on any specific deal.”
N. Sivaraman, director at L&T Finance, said: “Asset management business looks interesting to us. We have not yet applied to Sebi. There are multiple options available for inorganic growth.”
“An acquisition can help us get into the business fast. But till such time we take a final decision, it continues to be a speculation,” he added.
Indiabulls Financial Services couldn’t be reached for comment. Spokespersons of DBS as well as the Murugappa Group declined comment on “market speculation”.
DBS Cholamandalam Asset Management is a subsidiary of Cholamandalam DBS Finance Ltd, a joint venture between Chennai-based Murugappa Group and DBS Bank Ltd of Singapore, with each holding 37.5% and the rest being held by the public.
In August, it had Rs2,893.16 crore worth of assets under management (AUM). Of this, equity assets account for Rs252.93 crore under 11 schemes and the rest is debt. The volume of AUM plays a key role in valuing an AMC. At Rs80 crore, the cost of DBS Cholamandalam works out to be around 3% of its assets.
Typically, larger the equity asset base of the fund house, the higher its valuation. Debt funds receive lower valuation as the commission from managing such funds is lower than that on equity funds.
“A 3% valuation for DBS Cholamandalam would be on the higher side as most of the assets of the fund house are under debt and liquid schemes that fetch lower income compared with equity schemes,” said a senior official at a large bank-controlled AMC, who did not want to be identified.
DBS Cholamandalam has 78 employees, including 12 fund managers and 40 back-office employees. It is present at 22 locations across India and has at least 118,000 customer accounts. It posted a Rs38 crore loss for the year ended March.
Axis Asset Management, which is yet to launch its first fund, has 50 employees, including four fund managers and 10 back-office employees.
“Integration of employees is an issue that has to be looked into carefully. These kinds of acquisitions often result in retrenchment (of staff) which is avoidable,” said the DBS Cholamandalam official.
“We are aiming to have 100 employees and 8-10 schemes in our portfolio by March 2010. We have targeted a market share of 3% in terms of AUM in the next four-five years, which would place us among the top 10 fund houses in the country,” said Anand of Axis AMC.
India’s Rs7.49 trillion by assets mutual funds industry has 36 players, with Reliance Capital Asset Management Ltd topping the list with an average AUM of Rs1.17 trillion in August. It is followed by HDFC Asset Management Co. Ltd with average assets of Rs93,874.19 crore and ICICI Prudential Asset Management Co. Ltd with Rs77,966.86 crore.
Though the valuation of DBS Cholamandalam is seen as expensive by some fund managers, some deals in the past have been closed at higher valuations. For instance, Infrastructure Development Finance Co. Ltd (IDFC) in March 2008 took over Standard Chartered Bank’s asset management business in India for $205 million (nearly Rs995 crore today), valuing the firm at 5.67% of its AUM. IDFC retained the StanChart AMC’s staff.
In December 2007, Eton Park Capital Management Lp acquired a 5% stake in Reliance Capital Asset Management for Rs501 crore, valuing the AMC at 13% of its AUM.
In November, Religare AEGON Asset Management Co. Ltd (now known as Religare Asset Management Co. Ltd as Aegon exit the joint venture) bought Lotus India AMC, a joint venture between Fullerton Fund Management Group and London-based Sabre Capital Worldwide for around Rs110 crore, which valued Lotus AMC at about 2% of its AUM of Rs5,500 crore. About 90% of Lotus AMC’s assets were debt.

Source: http://www.livemint.com/2009/09/09230153/Axis-AMC-two-others-in-race-f.html?h=B