There are many questions being asked about the sebi vs. irda battle. If the fees paid to sebi / irda depends on the assets size, then it is obvious that both of them want a part of the wealth management pie. To most observers it was clear even in 2003-4 that by 2010-11 the assets under management of the life insurance industry would be greater than that of the mutual funds, now it has happened. Even if youleave the corpus of LIC the assets under management (more particularly equities) is far higher for life insurance companies. One major issue of course the amount of commission that an agent gets for selling a life insurance product is far higher than that of a mutual fund agent – at least initially. Now this is a product design fault – not the salesman’s mistake but the Managing Director’s office!

So it could be a battle for AUM. Remember there is another player in the pace – PFRDA. Next will be their move saying ‘Life Insurance companies cannot sell pension plans unless they are registered with us. So here you go again.

If a life insurance company were to sell a pension plan (with a life cover) it will have to register this product with IRDA (risk cover), with SEBI (the wealth accumulation process), with PFRDA (all pension products will have to be registered with them) and with RBI – ultimately it is the bank which will sell the product. Amusing, because all the 4 registrations will not protect the investor.

This reminds me of a dialogue by Amjad Khan in the film Sholay. …

“Ramgad ke vaasiyon ko…Gabbar se koi bacha sakta hain …to woh hai  khud Gabbar”. (translated it means if somebody can save the people of Ramgad (one village that he has been tormenting) from Gabbar….then it is himself Gabbar.

One more quote from one of the Pogo programs…one of the characters comes running..and says “We have found out who is the enemy…it is us”.

So if the common man is waiting for IRDA, SEBI, NISM, RBI, …to protect him, he is mistaken. Only he himself can protect himself. Look at these institutions they still talk about ‘Investor Education’ – a typical high handed ‘babudom’ language. Is it not time we changed it to ‘Investor Learning and Development?’. Deven Shah are you listening?

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  1. Subra 🙂

    I’ll comment on the different points you have raised…

    1) I don’t think it is an AUM battle or a turf war between regulators originating in egos. As Sandeep Parekh puts it very aptly in his recent article in ET: “It is a legal issue, with origins in investor protection and could have been resolved, if the products at issue were properly regulated in the first place by close coordination, perhaps with the intervention of the FM”. Can you disagree that IRDA has failed to protect the investor’s interest when it comes to ULIPs mis-selling? IMHO, IRDA’s excessive support to the insurance industry at the cost of consumer’s interest has forced SEBI to get into this ‘war’. You cannot have an MF industy that is asked to remove entry load and follow high level of transparency norms when an equivalent product with a different name (Less than 5% of the ULIP premium goes towards life cover, rest is for investment and agent’s fat commissions!) is sold with high commissions of 5% to 25% and in some cases were also as high 40% to 70% of the premium paid. We need a level playing field!

    2) I know that both of us are on the same page that its not just mis-selling, its also mis-buying. Consumers should be responsible before they buy. They should invest in gaining knowledge and understanding the product well before they buy. But that doesn’t vindicate mis-sellers. And I completely agree that its not just the ‘agents’, the management of the insurance companies are equally in the greed game. And IRDA supporting them instead of consumers is painful.

    3) At one point in my life, even I had cribbed about people just paying lip service to ‘investor education’ and not taking any effective action. Then I remembered the famous quote “Ask not what others can do for you, ask what can you do for others” 🙂
    I completely agree that ‘babudom’ language won’t work. But that can change only if more creative and smarter people agree to work within the existing system and create effective output. I know there are many hurdles in working for govt. sector – you will not get paid well (though I strongly feel that they should pay market level compensation if they want quality work), there may be too many processes, restrictions, delays, not enough creative freedom etc. But I told myself, let me fight these hurdles and yet try and make a difference. So hopefully in a few months from now you will see samples of work which will not have signs of ‘babudom’. Something that will hopefully inspire other creative people to join hands and contribute to the cause. If you are ready, then on your blog I am openly inviting you to join me in creating and executing “Investor Learning and Development” initiatives for our country. But you should be prepared to fight the hurdles and aim for success! Game?

  2. Subra, if we sit to write about inefficiencies in the financial system, then we can write a book. Deepa Venkataraghavan has already written one.

    What I’m saying that it is very easy to criticize ‘babudom’. I know because I had done that at some point. Only when you work closely with them, will you realize that their job is not as easy as it may seem. Now that I have some experience working with them, I know that there are some very competent, well-intentioned people out there to make a difference and they are fighting huge internal battles within the system. I would disagree on the point that SEBI is just paying lip service. Some of the initiatives they have taken in the last 18 months are commendable! I am an optimist and hope for things to improve and am looking at small ways in which I can contribute.

    Of-course, going to court looks very stupid. But if you look at the history of this battle and IRDA’s complete disregard for consumers and unwillingness to co-operate with SEBI, perhaps you may realize that it was inevitable:

  3. In a MF when I buy thru an agent, he gets trail. THIS COMES OUT OF MY NAV. When I buy DIRECT, i still pay trail. THIS GOES TO THE AMC. Clearly a case of unjustified enrichment – to use a financial jargon.

    Mis-selling is a problem created by the AMCs and the Insurance companies ably helped by the banks. In case a big bank goes to a small distributors client and assets get transferred, SEBI cannot do a thing.

    So ‘protecting’ the small guy (investor, broker, agent) is a fantastic lip service – just cannot happen. THE SMALL SHALL DIE. I was smart enuf to sell my NSe memship in 1999-2000 when the biggies came. Mis-selling by Mf thru NFO is now history but that was 20 years after they were established. Even now they call distribution as ‘dividend’. 99% of investors and 100% of distributors DO not know the diff between a Co. dividend and a mf dividend.

    The whole thing of going to a court is STUPID. The legislation has to be clear in the role of SEBI, IRDA, PFRDA AND RBI in the wealth and risk products. IRDA should hv done a cut paste of the mf regulations – trustee, independent directors, auditor for each scheme,..etc. Sebi has not shown any ‘extra’ competence in regulating wealth products – PMS is a mess. A pms by a mutual fund has restrictions like a mf, a pms from a broker has no limitaion. LOL. Anyway watch this space. Lots of fun.

  4. Deepa has joined the bandwagon and bashed the most vulnerable guy in the whole system – the Rs. 2 L p.a. earning agent. The problem is at a level far, far higher – it is the Rs. 15 L p.m. CEO where the problems start. SEBI’s role, I WILL NOT COMMENT at all. The M F industry’s prosperity is here to see. The fact that no trustee has ever been prosecuted, the fact that trustees meet expenses are borne by the amc (LOL, ROFL) are case in point. If we believe that the financial services industry is here to add value to the small investor, I am happy to be part of the crowd. Does not make a diff in my life, so I can take a stand. Like taking a stand on Sati. I do not have to enter the pyre.

  5. Thanks Subra for calling up to close the discussion on phone and agreeing to restart it when we meet in person again 🙂

  6. Some plain talking here reminding us about a dog eat dog world.

    How innocent a common investor is to consider that RDA, SEBI, NISM, RBI, would protect him.

    “Aghar apney hi bewafa nikle, toh wafa kissay karain.”

  7. My comment got entered before the preceding ones appeared.

    The debate is getting interesting and reveals a lot.

  8. Subra,

    “Does not make a diff in my life, so I can take a stand.”

    Very few people can take this stand, I call it financial terrorism…people don’t want to rock the boat because of the gravy train of incentives.

    Take a look at TOI, it didn’t get into the details of the dispute. They talked about at a high level ” SEBI vs. IRDA” blah, blah, blah…

  9. It is sad that SEBI had to initiate action in what is clearly a turf war. AMFI slept since the AMFI runners also have insurance companies.
    Let us hope that in this whole tamaasha, the ULIP becomes less opaque, if not totally obliterated. I do not buy the argument about protecting the breadline of an agent nor the argument that too many investors’ money is at stake. That cannot be an excuse for letting a wrong doing continue.It is sad that Insurance companies generally “refuse” to sell the only pure insurance product they have and instead sell investment products in the name and guise of insurance.

  10. I remember reading Northcote Parkinson’s “Parkinson’s law”
    The first law states ” Officials (Babus) make work for each other..
    Most of them do no useful work.. Subra permit me to copy & paste

    “…..They can be represented for the present purpose by two almost axiomatic statements, thus: (1) ‘An official wants to multiply subordinates, not rivals’ and (2) ‘Officials make work for each other.’

    We must picture a civil servant ( Babu ), called A, who finds himself overworked. Whether this overwork is real or imaginary is immaterial, but we should observe, in passing, that A’s sensation (or illusion) might easily result from his own decreasing energy: a normal symptom of middle age. For this real or imagined overwork there are, broadly speaking, three possible remedies. He may resign; he may ask to halve the work with a colleague called B; he may demand the assistance of two subordinates, to be called C and D. There is probably no instance, however, in history of A choosing any but the third alternative. By resignation he would lose his pension rights. By having B appointed, on his own level in the hierarchy, he would merely bring in a rival for promotion to W’s vacancy when W (at long last) retires. So A would rather have C and D, junior men, below him. They will add to his consequence and, by dividing the work into two categories, as between C and D, he will have the merit of being the only man who comprehends them both. It is essential to realize at this point that C and D are, as it were, inseparable. To appoint C alone would have been impossible. Why? Because C, if by himself, would divide the work with A and so assume almost the equal status that has been refused in the first instance to B; a status the more emphasized if C is A’s only possible successor. Subordinates must thus number two or more, each being thus kept in order by fear of the other’s promotion. When C complains in turn of being overworked (as he certainly will) A will, with the concurrence of C, advise the appointment of two assistants to help C. But he can then avert internal friction only by advising the appointment of two more assistants to help D, whose position is much the same. With this recruitment of E, F, G and H the promotion of A is now practically certain.

  11. Now it gets hilarious..

    Seven officials are now doing what one did before. This is where Factor Two comes into operation. For these seven make so much work for each other that all are fully occupied and A is actually working harder than ever. An incoming document may well come before each of them in turn. Official E decides that it falls within the province of F, who places a draft reply before C, who amends it drastically before consulting D, who asks G to deal with it. But G goes on leave at this point, handing the file over to H, who drafts a minute that is signed by D and returned to C, who revises his draft accordingly and lays the new version before A.

    What does A do? He would have every excuse for signing the thing unread, for he has many other matters on his mind. Knowing now that he is to succeed W next year, he has to decide whether C or D should succeed to his own office. He had to agree to G’s going on leave even if not yet strictly entitled to it. He is worried whether H should not have gone instead, for reasons of health. He has looked pale recently – partly but not solely because of his domestic troubles. Then there is the business of F’s special increment of salary for the period of the conference and E’s application for transfer to the Ministry of Pensions. A has heard that D is in love with a married typist and that G and F are no longer on speaking terms – no-one seems to know why. So A might be tempted to sign C’s draft and have done with it. But A is a conscientious man. Beset as he is with problems created by his colleagues for themselves and for him – created by the mere fact of these officials’ existence – he is not the man to shirk his duty. He reads through the draft with care, deletes the fussy paragraphs added by C and H, and restores the thing to the form preferred in the first instance by the able (if quarrelsome) F. He corrects the English – none of these young men can write grammatically – and finally produces the same reply he would have written if officials C to H had never been born. Far more people have taken far longer to produce the same result. No-one has been idle. All have done their best. And it is late in the evening before A finally quits his office and begins the return journey to Ealing. The last of the office lights are being turned off in the gathering dusk that marks the end of another day’s administrative toil. Among the last to leave, A reflects with bowed shoulders and a wry smile that late hours, like grey hairs, are among the penalties of success.

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