My observations on SEBI’s press release proposing amendments to Investment Advisor regulations:

(1) India is not ready for such extreme measures. The ground reality is much different. It takes a lot of hard work on the part of an IFA to convince a client about investing in mutual funds. Not only that; ensuring that the clients hold onto their investments is a far bigger challenge. An IFA must be fairly compensated for this.
(2) In a way, this notification seeks to eliminate distributors by making it non-compliant for them by removing incidental advice. This is because it is almost impossible to sell mutual funds without incidental advice.
(3) IFAs all across must come together under one banner and have a dialogue with SEBI on the proposed amendments and take them into confidence that such measures are infact detrimental for a large section of existing investors as well as potential new investors.

Till the date the proposed amendments are not converted into law, IFAs should apply a wait and watch strategy before taking any extreme step. If, however, regulator is not willing to listen and the said amendments are carried as law, I have the following views:-
A large number of IFAs will exit the profession.
While commissions may stay, it may become unattractive to remain a pure distributor considering the fact that no advice can be given.
Pure distributor will take a hit. Commissions can come down since clients won’t see much value in pure distribution.
It will be extremely difficult to sell mutual funds without incidental advice and therefore IFAs can fall under the non-compliant zone from the point of view of regulators. This can have serious implications if regulator takes action against such IFAs.
IFAs will have to consider becoming a fee based advisor by becoming a RIA (Registered Investment Adviser). In the short term, the revenues will drop sharply as most Indian investors are not prepared to pay fees.
IFAs can have a different arm as a distribution entity (under a different company, family member, etc.). However, if they do this, they must properly disclose this arrangement to the client and have proper systems and people who carry out the distribution work, keeping an arm’s length distance.
Mass distribution models will be the most affected. Individual IFAs could still prosper with limited sets of clients who understand value given by IFAs. Since regulator is giving a window of 3 three years, IFAs should keep a watch on things as they unfold.
All in all, at this point of time, the proposed amendments are negative for IFAs at large. I truly hope that the regulator rethinks about the said amendments and not hurry up to make it a law.