Jaydeep Kashikar: Financial literacy has surely gone up, but is still at a nascent stage because many investors still depend on their advisors. So, an advisor's job is to first educate the investor and then do a proper financial plan as per the investor's needs.

The new regulations will surely further this cause. The competition among distributors has historically depended on who gives the highest payback (rebating). In future, the competition should be on the quality of advice. As the remuneration from the manufacturer would come down and that from the investor will go up, the advisory level and financial literacy will go up.

Jaydeep Kashikar: When we stopped rebating long back, at a time when Sebi officially banned the practice, we lost 20-25 per cent of our investors. Those who believed that we can deliver returns in excess of the gains that they make on rebates stuck with us. Similarly, right now, some people compare our rates with what other financial planners charge. But, we are firm on our capabilities. I am sure investors would realise that the advisor who is able to deliver higher risk-adjusted returns would be more important than the one who charges lower fees.

Jaydeep Kashikar: If it’s an equity fund, check whether the fund that your agent has recommended comes in the top two quartiles, consistently. Ensure your agent does not recommend you high-momentum funds when markets are high. Many infrastructure funds were sold in the last quarter of 2007. A good advisor would not have recommended them at a time when equity shares of infrastructure companies were already overvalued. Some kind of an advisory should be available in overheated markets, too, to soothe the nerves of investors.

Jaydeep Kashikar: There are distributors who treat this as a business and not a profession. Such distributors will shift to selling insurance products realising that income from MFs will drop. Maybe the regulator should have curtailed the transition period required to shift to the new-cost regime to six months, down from one-and-a-half years. Clearly, in the next 18 months, distributors who are just looking at their upfront revenues will have a major advantage in selling insurance products. In the current scenario, there is a good chance that more than 50 per cent distributors will focus on insurance.

Jaydeep Kashikar: For agents who are into this purely because it made business sense [merely distribution, little or no advise offered], it is time to change. For the next one-anda- half years, they could, perhaps, switch to insurance. But, what after that? Kayezad E. Adajania:Is this the end of the transactionbased fee model? Jaydeep Kashikar:It should be because till the time it is a transaction-based fee regime, there is scope of churning. Entry loads may be zero, but there is an upfront fee ranging from 0.25 per cent to 0.5 per cent, at times slightly more. Till the time money comes from the manufacturer, there would be scope of wrong advice. Ideally, the fees should be on the wealth managed.

Jaydeep Kashikar: Investors should look at valued-added services rather than cheaper services. Also, I think until misselling stops, it is better that theMF industry doesn’t expand. If we go into villages and sell wrong products at the wrong time and erode wealth, it is better we don’t penetrate. Let us have the right regulation in place, let us have the right advisors in place and then think of penetration. Asuper regulator overseeing all financial products, including MFs and insurance, would bode well because the distributors won’t find an escape route to sell other products if one is regulated and the other isn’t. It will bea win-win situation—MFs and insurance companies could disclose their commission structure, financial advisors charge what they feel they deserve, and the investors get the best kind of advice.