If Sebi has its way, wealth managers will have a tough time going forward as the capital markets watchdog is in the process of coming out with stern measures to regulate the relationship managers in particular and wealth management firms in general.

Sebi has also flagged the need for concerted efforts and better coordination both at the operational as well as the surveillance level between the various regulators to protect the interests of investors in this increasingly complex world of financial products.

In fact, Sebi executive director KN Vaidhyanathan, who heads the investment management department that oversees foreign institutional investors and mutual funds at Sebi, was very vocal at a seminar over the weekend here, “We can’t remain silent. We need to come together and address how to regulate the wealth management sector which straddles across different jurisdictions.”

“The markets are far too advanced now. The wealth managers of today straddle across products that cut through banking, capital markets and insurance regulatory frameworks. We need to integrate across regulators, not just at the policy level, but at the operating and surveillance levels too,” he stressed.

The strong pitch for coordination and firmer control on these nascent areas of the financial system assume critical importance in the light of the recent Rs 350-crore wealth management fraud that took place at the Gurgaon branch of Citibank.

In the fraud, Citibank’s one of the relationship managers allegedly used fraudulent documents to lure high networth individuals and companies such as the privately held Hero Investments, an arm of the country’s largest two-wheeler maker.

Further, pointing fingers at the relationship managers at wealth management firms, he said the risk in the wealth management business lies with the relationship manager, as his remuneration is not completely aligned with the interest of the customer.

“Relationship managers are the key risk in the wealth management business from an investor’s point of view. His remuneration is not fully aligned with the interest of the investor,” Vaidhyanathan said.

“The institution guards its risk by getting certain documents from the customer, so the risk of the relationship manager is actually borne by the customer. Therefore, we regulators should better address the issue of regulating the relationship manager,” he added.


When contacted, Karvy Private Wealth Management chief executive Hrishikesh Parandekar said, “Such regulatory steps will definitely help the industry in a regulated manners, so that another bad name can be avoided.”

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September 2021