Compliance, Commission, Conflict, Convenience, And Clients

By Manikaran Singal, CFP, CTEP, CeFT, Managing Director and Principal Officer, Good Moneying Wealth Planners Pvt Ltd

From Compliance to Client: The 5-C Journey of a Financial Professional

The other day, I happened to visit a Chartered Accountant’s office. Amidst the certificates and files neatly arranged on the shelf, one shiny trophy stood out. Curious, I asked him about it. He smiled and said, “Oh, that’s from an insurance broker. Whenever my clients ask for an investment, I just refer them. The broker closes the deal and transfers the commission to my wife’s account.”

His answer was casual, but the implication wasn’t. As a SEBI-registered investment adviser, I immediately sensed a conflict of advice. Yet, this wasn’t an unusual or surprising arrangement, it was simply convenient. The client got a product, the broker made a sale, and the CA earned a commission. Everyone seemed satisfied except perhaps the person whose financial future was at stake. Did he himself ask for the product or the product was advised to him?

In this entire chain, who was the adviser? As far as the transaction goes “Adviser” as nomenclature may be applied to the Insurance broker but the investor may have believed CA as the one, who was supposed to discuss the suitability, whether the product matched the client’s goals, risk appetite, or needs.

This is where advice quietly turns into selling, and convenience overshadows responsibility.

Now that was another regulator’s product but it’s true that earning a commission is easy, while charging a fee is difficult. And also if you were told to maintain documents of rationale and suitability of advice, do the KYC, regular reporting, , getting your advice audited and much more, the trouble increases, and so is the cost of advice.

Those who operate under SEBI’s Registered Investment Adviser (RIA) framework know this first-hand. They charge clients directly, offer conflict-free advice, and recommend low-cost direct plans. Their income depends on trust, time, and tangible value addition. And to sustain all of this, they must adhere to stringent compliance and reporting norms.

Take, for instance, the recent SEBI circular mandating that websites be made accessible to persons with disabilities , a well-intended move, but one that demands significant time and cost. Shouldn’t such requirements apply equally to all intermediaries offering financial advice, even if only “incidentally”? After all, they too are part of the same advisory ecosystem. Broader inclusion would naturally create economies of scale, making compliance more efficient and practical for everyone.

It feels like the entire ecosystem is caught in a triangle of friction.

RIAs seek convenience with less compliance and fair compensation for their time.

Distributors seek to avoid the compliance maze altogether, but they want flexibility in financial planning and advising.

The regulator seeks conflict-free, client-first advice.

And the Product Manufacturer is Fine with both sides, as their sales are growing anyway.

And in the centre of this triangle lies the client, surrounded by paperwork, persuasion, and promises, often unsure who to trust. It should not matter if client is directly paying the fee or indirectly the commissions, ultimately he is the one who is paying for advice.

How can the same level of compliance apply to an intermediary serving 30 clients and another managing 500 investors? It seems unreasonable that someone handling a small number of clients must deal with extensive reporting and documentation, while those distributing to and influencing hundreds of investors face far fewer obligations.

If we step back and look at this landscape, it’s not that anyone is entirely wrong. Everyone is reacting to their incentives. However, for a system to thrive, incentives and accountability must align. Perhaps we can borrow a few lessons from another time-tested structure — our income tax system.

Every resident or non-resident, individual or non-individual, is required to file Income Tax Returns and pay taxes based on clearly defined rules. Whether salaried, self-employed, or business owner, compliance is mandatory and predictable. There are clear slabs, forms, and processes. Those with simple income structures file basic returns. Those with complex or large incomes have to furnish detailed disclosures and undergo audits. The system is transparent, layered, and inclusive. Then comes a GST arrangement, where a business owner has to register under GST once the receipts cross 20 lakh in a Financial year, and file additional returns.

Now imagine if SEBI adopted a similar approach to regulation, mandating all who are advising or distributing SEBI regulated products have to follow the rules.

Every advisor, distributor, or professional giving financial advice could be required to file an annual declaration with SEBI confirming compliance, disclosure practices, and client volume. Those handling larger numbers of clients or managing greater assets (AUA) could be asked to provide detailed reports and undergo periodic audits. Smaller players could have lighter compliance, just as individuals with lower income or simpler financial structures have easier tax filing requirements.

This would bring clarity, fairness, and scalability. Compliance wouldn’t only depend on whether one is registered as an RIA or MFD or gives incidental advice, but It would also account for the volume and complexity of work — the number of clients, type of clients, assets under management or advice, and nature of products dealt in. Some Rules could vary depending on extra layers of work being done by respective intermediary.

Like different income tax forms ITR-1 for salary earners, ITR-3 or ITR-5 for businesses , compliance can also vary based on parameters like the type of clients (individual or corporate), their residential status (resident or NRI), the types of assets advised upon (mutual funds, PMS, insurance, etc.), and the scope of advice offered (pure fee only advisory or distribution with commission or hybrid).

In essence, different compliance forms for different complexities, all leading to the same goal a more transparent, more responsible financial ecosystem.

“After all, everyone is earning from the Client – Directly or Indirectly”

Such a volume-based compliance model would make the system more practical. Those who influence more investors or handle larger client bases or advise on multiple products, or those, as per the regulator, are a more risky or vulnerable domain to advise on, should naturally carry greater accountability. The compliance and audit burden should align with volume and responsibility, not with the label of registration. Yes, based on the level, labels can be allotted for better identification and the investor’s understanding.

Even the registration and renewal fees charged by SEBI can be rationalised in this framework. Smaller players can pay lighter fees and have simpler filings, while larger ones with greater reach can bear proportionate costs. Product manufacturers, AMCs, PMS houses, and Stock exchanges , who ultimately benefit from the distribution and advisory network, can also share part of this regulatory cost.

The focus should shift from “who you are” to “how much you impact.”

The good part is, we don’t need a new setup to make this happen. The existing infrastructure already provides a ready foundation.

For RIAs, there is already a Supervisor, like BSE, who oversees Compliance management.

For distributors, AMFI and AMCs can act as reporting and oversight nodes.

For brokers, the stock exchanges can manage periodic declarations and audits.

This would avoid duplication, promote consistency, and make compliance far more convenient. It will also create a level playing field where both fee only RIAs and commission-based distributors operate transparently, each under their respective, well-defined, and compliant frameworks.

The outcome? More confidence for investors, less confusion for intermediaries, and a clear, unified direction for the regulator to pursue.

At the end of the day, all these “Cs” Compliance, Commission, Conflict, Convenience, and Clients are interlinked. Compliance ensures discipline. The commission ensures business sustenance. Conflict tests integrity. Convenience defines behaviour. And the client, ultimately, bears the impact of how the rest are managed.

The regulator wants conflict-free advice. The advisor seeks convenience and fairness. The distributor wants ease of doing business. The client wants clarity, suitability, and trust.

If the system can balance these interests as the income tax framework does so efficiently, it can encourage more professionals to enter the advisory space, foster responsible growth, and ensure that every intermediary, from the smallest mutual fund distributor to the largest advisory firm, works with transparency and accountability.

Because in the end, the true measure of good advice isn’t how convenient it was to give, but how right it turned out to be for the one who received it.

(Disclaimer: Views expressed are the author's own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)