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'Quality differential among financial advisors should drive business'

Sarbajeet K Sen/Money Today        Print Edition: May 2011

Dhirendra Swarup, took over as the chairman of the Financial Planning Standards Board of India (FPSB) on April 1.

The former chairman, Pension Fund Regulatory and Development Authority (PFRDA), thus became the first chairman of FPSB who has come from outside the ranks of the 50-odd charter members, which include the country's top banks, insurers, finance companies and mutual funds. Swarup was also recently appointed the member-convenor of the government's 11-member Financial Sector Legislative Reforms Commission.

In an interview with Sarbajeet K Sen, the first in his new capacity at FPSB, Swarup highlighted the need for greater investor literacy and education and higher standards in financial intermediation.

You recently took over as the chairman of FPSB. What are the immediate priorities and the agenda before the board?
Our immediate priorities would be to disseminate the advantages of financial planning to general public while promoting professional and ethical standards among financial planners and investment advisers.

What are your views on the state of awareness of the public regarding financial planning? Do you feel that, with the wealth quotient on the rise, awareness levels are improving?
The general awareness about financial planning among the public is low, especially in tier-II and tier-III cities and towns. Considering the fact that financial literacy continues to be low, we cannot say that the awareness has improved.

Do you feel that the entry norms for independent financial advisors or brokers should be tightened to reduce the incidence of mis-selling? Should there be a parallel effort to educate the general public?
Investor education and literacy go hand in hand with efforts to strengthen financial intermediation through effective regulations and enforcement. A certification programme such as Certified Financial Planner (CFP) of FPSB, committing the practitioner to a strict code of conduct, would serve as an entry barrier. Quality differential among financial advisors should drive business now. A significant step would be to either give a statutory status to FPSB or at least allow it to function as a Self-regulatory Organisation.

Since the primary role of the board is to raise the standards of financial planning, how important do you think is the need for the board to work in tandem with regulators such as the IRDA and PFRDA?
Working in close cooperation with all regulators is essential and has been FPSB's endeavour for long. FPSB has always advocated a client-centric and advisory nature of financial intermediation.

What role do you see financial institutions such as banks, insurance companies and mutual funds playing in creating new standards in financial planning?
The financial products of banks, mutual funds and insurers are the means to achieve financial goals. While these goals have to be primarily set by the individual, it is the obligation of all financial intermediaries to give proper advice.

What do your think are issues peculiar to India that make financial planning important as compared with other countries, especially developed ones?
India has a demographic advantage, which will continue for the next few decades. Financial planning inculcates good financial behaviour, responsibility and discipline. Sound personal finance promotes financial well-being of not only the individuals but also of the nation as a whole.

Do you feel there is a need to strengthen the institutional safety nets for the long-term financial security of investors? What could be such specific initiatives?
With rising population and growing middle class, empowering citizens through financial education is imperative. Institutions should facilitate responsible intermediation and management of long-term financial obligations.

Do you think there is a greater need for financial planning for women, who are increasingly entering the workforce and why?
Women have an equal need, if not more, for financial planning. With growing wealth in the hands of women (a study indicates that 61% of the total wealth worldwide is with women), some specific needs of women would relate to socio-demographic factors such as age, life expectancy, income level, risk appetite, risk tolerance and marital status. The importance of financial planning for women cannot be overemphasised as at some point in their lives, a majority of women will be solely responsible for their financial decisions including distribution of estate, especially in case of divorce or death of spouse. This also calls for specialised financial planning practices, including financial planning for young couples, retirees and single women.

You had chaired a government-constituted committee on investor protection and awareness that had come out with some recommendations that could bring about major changes in the financial landscape of the country, including the financial sector in the country going noload (without commission charges on investments) from April 2011. No action has been taken by the government on the report? What do you have to say on this?
Investor protection and improving the financial landscape is a continuous journey and governments world over are taking measures towards the same. India is also witnessing a definite trend towards empowerment of the investor in recent times. I hope the government will consider the suggestions made in this report for the benefit of the savers and investors. The newly constituted Financial Sector Legislative Reforms Commission is also expected to examine the recommendations of the Investor Protection and Awareness Committee.

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