The recommendations have twin objectives - setting up a regulatory system with common standards for financial advisors and integrated approach to financial education.
Recommendations:
- No-load structure - all retail financial products should go "no-load" by April 2011. This will remove the bias of selling products with the highest commission
- Financial education for advisors and investors - The proposal to set up the Financial Well-Being Board of India (FINWEB) is an approach to convert awareness into knowledge
- Entry barrier - a common minimum entry barrier for all financial advisors which will include a knowledge-linked training programme and a common examination pattern. In addition, there would be different licenses based on the skill sets of the advisor and the type of products and services he can sell
- Code of Conduct - to establish a standard code of ethics across all products and organisations, to ensure that all advisors are registered with FINWEB and to set up a body with the power to admit, discipline and demit members
- Disclosure norms - investors should be informed about the total cost borne by them, the income earned by advisors from the sale and maintenance of a product, the risk carried by the product and the role of the product and its outcome
- Reporting norms - to include documentation of sale proceeds and a declaration counter-signed by the investor acknowledging the disclosures made by the advisor. This will avoid the practise of hit-and-run financial products wherein an advisor hits an investor with a product and runs
- Punitive actions for advisors - penalties, loss of license to do business or criminal proceedings in case of mis-conduct / mis-selling
- Dispute Redressing - investors will have a common interface to complain about financial products, services and outcomes
- Increase investors knowledge of financial products and the way they are structured
- Ensure that the products are sold keeping only investors' interest in mind, without being influenced by commissions earned by distributors
We believe these recommendations have a two-fold effect
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