Introduction of Retirement Advisers: Concept Note by PFRDA
Pension
Fund Regulatory and Development Authority is in the process of drafting
regulations for Retirement Advisers. Towards this end, the Authority
has prepared a Concept Note which is being placed on the website of
PFRDA for Stakeholders and public comments. The comments may please be
forwarded to email:
akhilesh.kumar@pfrda.org.in by 10th of September 2015
or sent to the following address:
Shri Akhilesh Kumar, Dy. General Manager,
Pension Fund Regulatory and development Authority ICADR Building,
Plot no. 6,
Institutional Area Phase II, Vasant Kunj, New Delhi-110070
Concept Note on
Introduction of Retirement Adviser
Contents 1. Background
2. Retirement Planning
3. Retirement Adviser
4. Scope of Work of Retirement Adviser
5. Eligibility for Retirement Adviser
6. Application for Registration
7. Registration Fee
8. Exemption from registration and Certification
9. Period and Validity of Registration
10. Renewal of Registration
11. Suspension and Cancellation of Certificate of Registration
12. General Responsibilities and Obligations
13. Maintenance of records
14. Segregation of execution services
15. Appointment of Compliance Officer
16. Fees to be charged by the Retirement Adviser
17. Grievance Redressal
18. Penal provisions
1. Background
Population
Ageing, which entails an increasing share of elderly people in the
population, is a major global demographic trend which will increase
rapidly during the twenty-first century. Population ageing is taking
place in nearly all the countries of the world. Globally, the number of
older persons (aged 60 years or above) is expected to be more than
double, from 841 million people in 2013 to more than 2 billion in 2050.
According to the Ministry of Statistics, GOI, in India the
elderly (aged 60 years or above) accounted for only 7.4% of the
population in 2001 which has increased to 8.4% of the population in
2011. While India is ‘young’ with a median age of 25, the proportion of
the elderly is set to rise to 10.7% of the population by 2021 against a
background of rapid transformation in household structures. In India,
average life expectancy at the age of 60 years is approximately 18
years. Lifespan has been increasing due to better health and sanitation
conditions in the country. However, the average number of years of
employment has not been rising commensurately. The result of this is an
increase in the number of post-retirement years without regular income.
Therefore it is more critical now than ever before to ensure regular
income for life after retirement. The need for retirement saving is thus
inherent and a foregone conclusion.
The
extended household is changing to a nuclear one, and the elderly are no
longer dependent on their children for their financial needs. Other
changes, such as the migration from the village to the city, are also
leaving many elderly people in rural areas without any family support.
The
existing social security schemes cover a very small percentage of
working population in the unorganized sector and there is a need of
increasing the social security coverage to meet the challenges of
increasing life expectancy. An increase in life expectancy has created
an imperative for consumption leveling and retirement savings.
With
the rapidly rising retiring population across all sections of society,
accompanied by the decline of the traditional family support structure,
the need of the hour is an old age income security programme.
2. Retirement Planning
The
objective of Retirement Planning is not only to determine the
requirement but also the investments made during working age to achieve
post retirement requirements. It is a process of both planning and
management of financial resources, during the working years, for the
period after retirement. Retirement Planning includes identifying a
suitable savings program and managing assets. Future cash flows are
estimated to determine if the post retirement financial requirement will
be met out. A holistic approach to retirement planning considers
financial preparation for life after paid work ends.
The
emphasis one puts on retirement planning changes during different life
stages. In the early stage in a person's working life, retirement
planning is about setting aside enough money for retirement. During the
middle of an individual's career, it might also include setting up
specific income flow or asset targets and taking the steps to achieve
them. In the last few years leading up to retirement, financial assets
are more or less determined, and therefore, the emphasis changes to
non-financial aspects like lifestyle.
When it
comes to retirement planning, Indians have largely saved and invested
with a dual focus on saving taxes and generating guaranteed returns.
Limited education about financial saving, and lack of retirement
planning outlook poses a grave challenge in increasing the penetration
of pension schemes.
Creating awareness about pension schemes
regulated by PFRDA, educating people about the benefits of retirement
planning and clear articulation of scheme details will play a critical
role in boosting participation in this voluntary scheme. The PFRDA Act,
2013, mandates an orderly growth of pension sector and provision of old
age income security, which thereby implies that pension is available for
all masses, cutting across, educational, regional, economical, social
and political barriers. An orderly growth is an inclusive growth.
Retirement Planning has become more important due to increasing cost of living and rising inflation.
3. Retirement Adviser
Educating
and making people aware of the benefits of the retirement planning and
creating awareness about the pension schemes regulated by PFRDA is
critical for increasing participation in the voluntary segment of NPS
and other pension scheme regulated by PFRDA. The role of an advisory
entity would be critical in propagating the schemes to the masses in
order to achieve adequate social security. This requires penetration
into the grass root level.
Retirement
Advisers, with adequate knowledge of a prospect’s needs and means, and
knowledge of the pension products, will be in a better position to
advise individuals, who have different levels of education, financial
literacy, wealth, income potential, capacity to save and financial
goals.
Retirement Adviser can play a significant role in helping the prospects/subscribers in deciding retirement plans.
4. Scope of Work of Retirement Adviser
a)
Creating awareness of NPS and other pension scheme regulated by PFRDA
will be the core responsibility of the Retirement Adviser.
b)
To facilitate on-boarding of the prospective subscriber to National
Pension System or other pension scheme regulated by PFRDA.
c)
To advise prospects on the necessity of retirement planning, level of
contributions they could make, considering their current and future
potential income to achieve desired retirement goals and other issues
connected with taking of these decisions.
d) To help prospects and other citizens in planning for retirement savings.
e)
The adviser is expected to exercise professional due diligence while
dealing with prospects and have the necessary skills towards this end.
f)
The adviser should allow a free and frank atmosphere while dealing with
prospects, which shall allow them to take informed transactional
decisions.
g) The adviser needs to collect and
suggest prospects , the most suitable scheme taking into consideration
the following aspects of the prospects and based on utmost good faith
and fair market practices:
i. Due diligence on
the requirements of the prospect to suggest them the most suitable
products by collecting basic information of the prospect such as
information around: age, marital status, dependents, current assets,
liabilities, income, planned purchases, planned retirement age; plans
post retirement, family history of health and longevity and the current
health position.
ii. Identifying prospect’s financial and retirement goals.
iii. Analyzing prospect’s current financial situation and current investments.
iv. Risk profiling of the prospect/subscriber. v. Asset Allocation
vi. Investment allocation strategy
vii. Periodic monitoring and balancing.
viii. Likelihood of immediate and near future financial commitments of either self or family.
h)
A Retirement Advisor will enable the subscribers to avail the benefits
of pension schemes regulated by PFRDA by supporting them in making
simple decisions about contributions, investments allocation and
selection of Pension Funds.
i) A Retirement
Adviser will partner with corporates and Government departments to run
awareness programmes on retirement planning for their employees.
j)
A Retirement Advisor should be able to appropriately guide and advice
the subscriber about the risk and return profiles of the different
financial securities and also advise the most suitable ratio of fund
allocation in each of the asset classes viz. Equity, Government
Securities, Corporate Bonds after duly considering the profile of the
prospect and prevailing market conditions, and expected growth in the
various parameters of economy and financial markets.
k)
Retirement Advisors may create awareness on the fund performance of
each fund manager including comparison of the returns of the scheme and
investments made by the pension funds, on the basis of information made
available/approved by Authority.
l) Retirement
Advisors would transmit information and documents to intermediaries in a
time bound manner and maintain utmost confidentiality of personal
information collected from subscribers and cannot use it for any other
activity.
5. Eligibility for Retirement Adviser a) Who can become Retirement Adviser
Any
firm or body corporate or an individual who wishes to engage in the
activity of providing advice on National Pension System or other pension
scheme regulated by PFRDA to prospects/subscribers or other persons or
group of persons.
b) Education qualification
Individuals
and the proprietors, partners and representatives of a Retirement
Adviser shall have the minimum qualification of being a Graduate in any
discipline.
c) Certification from an accredited institute
Individuals
and the proprietors, partners and representatives of Retirement
Advisers to ensure that the individuals offering retirement advice shall
have, at all times, a certification on retirement planning or
retirement advisory services from an Institute accredited by PFRDA.
Provided that certification shall not be mandatory in the following cases:
(i)
an Investment Adviser registered with SEBI under its regulations (ii) a
Certified Financial Planner of Financial Planning Services Board
(iii) any other cases as specified by PFRDA
d) Performance Guarantee
i)
Retirement Advisers which are body corporate or partnership firm on
registration shall provide performance guarantee of Rs. 5 lacs to the
Authority before commencement of business. The Guarantee shall be valid
for a period of six months beyond the registration period.
ii)
Retirement Advisers who are individuals or proprietors on registration
shall provide performance guarantee of Rs. 50 thousand to the Authority
before commencement of business. The Guarantee shall be valid for a
period of six months beyond the registration period.
e) Registration as Points of Presence or Points of Presence-Corporate
There
shall be no restriction on institutional Retirement Adviser for
applying for registration as Points-of Presence or
Points-of-Presence-Corporate, subject to fulfilment of eligibility
criteria for the same.
6. Application for Registration
An application for grant of certificate of registration to PFRDA shall be accompanied by a non-refundable application fee
i) For Individuals: Rs. 500/-
ii) For other than individuals: Rs. 5,000/-
7. Registration Fee
a)
A firm or a body corporate applying for Retirement Adviser has to
submit registration fee of Rs. 10,000/- at the time of grant of
registration /renewal.
b) Individual applying for Retirement
Adviser has to submit registration fee of Rs. 1,000/- at the time of
grant of registration /renewal.
8. Exemption from registration and Certification.
(i)
The following persons/entities shall not be required to seek
registration subject to the fulfilment of the conditions stipulated
therefor, —
(a)Any intermediary/entity regulated by PFRDA.
(b) Any other entity as may be specified by the PFRDA.
(ii)
The following persons/entities shall not be subjected to certification
for registration subject to the fulfilment of the conditions stipulated
therefor, —
(a) Any advocate, solicitor or law firm, who provides retirement advice to their clients, incidental to their legal practice;
(b)
Any member of Institute of Chartered Accountants of India, Institute of
Company Secretaries of India, Institute of Cost and Works Accountants
of India, Actuarial Society of India or any other professional body as
may be specified by the Authority, who provides retirement advice to
their clients, incidental to his professional service;
(c)Any other entity as may be specified by the PFRDA.
9. Period and Validity of Registration
The
certificate of registration granted to a retirement adviser to act as
such, shall be valid for a period of three years from the date of its
issuance.
10. Renewal of Registration
The
Retirement Adviser should submit an application for renewal of
certificate of registration three months before expiry of the
certificate of registration.
The application for renewal shall be dealt with in the same manner as if it were a first time application.
11. Suspension and Cancellation of Certificate of Registration
The
certificate of registration issued to the Retirement Adviser will be
subject for suspension or cancellation in the following cases, if the
Retirement Adviser :
a) Fails to comply with any of the conditions subject to which the certificate has been granted;
b)
Contravenes any of the provisions of the Pension Fund Regulatory and
Development Authority Act, 2013, the regulations framed thereunder and
such other guidelines or directions issued by the Authority from time to
time; or;
c) Fails to furnish any information relating to his activities as retirement adviser as required by the Authority;
d)
Furnishes wrong or false information, or conceals or fails to disclose
material facts in the application submitted for obtaining the
certificate.
e) Does not submit periodical returns as required by the Authority
f) Fails to resolve the complaints of the subscribers or fails to give a satisfactory reply to the Authority in this behalf.
g) Does not co-operate with any inspection conducted by the Authority
h) Acts in a manner against the interest of the subscriber or against public interest;
i)
Against whom any investigation has been commenced in relation to fraud
or financial impropriety or has been convicted of commission of any
economic offences.
12. General Responsibilities and Obligations
i) General responsibility.
a)
A Retirement Adviser shall act in a fiduciary capacity towards its
prospects/subscribers and shall disclose all conflicts of interests as
and when they arise.
b) A Retirement Adviser
may have a tie up with the registered POPs for providing services to the
prospects. There shall be no restrictions on the no. of POPs with whom
the Retirement Adviser may make a tie up.
c) A
Retirement Adviser shall not receive any consideration by way of
remuneration or compensation or in any other form from any person other
than the prospect/subscriber being advised, in respect of National
Pension System (NPS) or other pension scheme regulated by PFRDA for
which advice is provided.
d) A Retirement
Adviser shall not collect any cash amount for investment/contribution to
the pension account of the subscribers in the capacity of Retirement
Adviser.
e) The Retirement Adviser shall
advice the prospects/subscribers how to fill in the registration form
for enrolment, Exit forms, various other forms required to modify/change
personal master details, nomination, POP, PFM, investment choice etc.
f)
The Retirement Adviser shall advice the subscribers on a periodic basis
about the performance of POPs, PFs, underlying asset portfolio, NAV,
general financial market trend etc. through e-mail, newsletters etc.
g)
The Retirement Adviser shall advice the subscribers on a periodic basis
about the change in various policy & guidelines issued by PFRDA,
CRA or its intermediaries.
h) A retirement
adviser shall maintain an arms-length relationship between its
activities as a Retirement Adviser and other activities.
i)
A Retirement Adviser which is also engaged in activities other than
retirement advisory services shall ensure that its retirement advisory
services are clearly segregated from all its other activities, in the
manner as prescribed hereunder.
j) A
Retirement Adviser shall ensure that in case of any conflict of interest
of the retirement advisory activities with other activities, such
conflict of interest shall be disclosed to the prospects/subscribers,
beforehand.
k) A Retirement Adviser shall not
divulge any confidential information about its prospect/subscriber,
which has come to its knowledge, without taking prior permission of its
prospect, except where such disclosures are required to be made in
compliance with any law for the time being in force.
l) A Retirement Adviser shall follow ‘Know Your Customer’ procedure as specified by the Authority from time to time.
m)A Retirement Adviser shall abide by Code of Conduct as specified by PFRDA.
n) In case of change in control of firm of the Retirement Adviser, timely intimation should be given to PFRDA.
o)
Retirement Advisers should furnish to the Authority information and
reports as may be specified by the Authority from time to time.
p)
It shall be the responsibility of the Retirement Adviser to ensure that
its representatives and partners, as applicable, comply with the
certification and qualification requirements as specified by PFRDA at
all times.
ii) Risk profiling.
Retirement Adviser shall ensure that,-
a)
it obtains from the prospect/subscriber, such information as is
necessary for the purpose of giving retirement advice, including the
following:-
(i) age;
(ii) income details;
(iii) existing retirement savings/ assets;
(iv) risk appetite/ tolerance;
(v) liability/borrowing details.
(vi) dependent family members
b) it follows a process for assessing the risk, a prospect/subscriber is willing and able to take, including:
(i) assessing a prospect’s capacity for absorbing loss;
(ii)
identifying whether prospect is in a position to understand the concept
of market risk involved in the process of investment.
(iii) appropriately interpreting prospect responses to questions and not attributing inappropriate weight to certain answers.
(iv) is able to understand and appreciate that retirement
plans involve long gestation period, and early liquidation or exit, from the scheme is not beneficial
c)
where tools are used for risk profiling, it should be ensured that the
tools are fit for the purpose and any limitations are identified and
mitigated;
d) any questions or description in
any questionnaires used to establish the risk a prospect is willing and
able to take are fair, clear and not misleading, and should ensure that:
e) questionnaire is not vague or use double negatives or in a complex language that the prospect may not understand;
f) questionnaire is not structured in a way that it contains misleading questions.
g) once the assessment is done risk profile of the prospect is communicated to the prospect;
h) risk assessment is updated periodically on the basis of the information provided by prospects/subscribers.
iii) Disclosures to prospects/subscribers.
a)
A retirement adviser shall disclose to a prospective subscriber, all
material information about itself including its business, disciplinary
history, the terms and conditions on which it offers advisory services,
affiliations with other intermediaries and such other information as is
necessary to take an informed decision on whether or not to avail its
services.
b) A retirement adviser shall
disclose to its prospect, any consideration by way of remuneration or
compensation or in any other form whatsoever, received or receivable by
it.
c) A retirement adviser shall disclose to
the prospect any actual or potential conflicts of interest arising from
any connection to or association with any intermediaries under NPS or
any other pension scheme regulated by PFRDA, including any material
information or facts that might compromise its objectivity or
independence in the carrying on of retirement advisory services.
d)
A retirement adviser shall, while making an advice, make adequate
disclosure to the prospect of all material facts relating to the key
features of the products or securities, particularly, performance track
record of various investment asset class and annuity schemes offered by
various PFMs and ASPs.
e) A retirement adviser
shall draw the prospect’s attention to the warnings, disclaimers in
documents, advertising materials relating to an investment choice and
annuity choice which it is recommending to the prospect/subscriber.
13. Maintenance of records.
a) A Retirement Adviser shall maintain the following records,-
i) Know Your Customer records of the prospect/subscriber;
ii) Risk profiling and risk assessment of the prospect/subscriber;
iii)Suitability assessment of the advice being provided;
iv)Copies of agreements with prospects/subscribers, if any;
v) Retirement advice provided, whether written or oral;
vi)Rationale for arriving at advice, duly signed and dated;
vii)
A register or record containing list of the prospects/subscribers, the
date of advice, nature of the advice and fee, if any charged for such
advice.
b) A Retirement Adviser, other than an
individual Retirement Adviser generating a fees of amount of not more
than the limit as specified by PFRDA for retirement advisory services,
shall undertake yearly audit in respect of compliance with these
regulations from a member of Institute of Chartered Accountants of India
or Institute of Company Secretaries of India.
14. Segregation of execution services.
Retirement
Advisers which are banks, NBFCs and body corporate providing
distribution or execution services to their prospects shall keep their
retirement advisory services segregated from such activities:
Provided that such distribution or execution services can only be offered subject to the following:
(a)The
prospect shall not be under any obligation to avail the distribution or
execution services offered by the Retirement Adviser.
(b)The
Retirement Adviser shall maintain arm’s length relationship between its
activities as retirement adviser and distribution or execution
services.
(c)All fees and charges paid to
distribution or execution service providers by the prospect shall be
paid directly to the service providers and not through the Retirement
Adviser.
15. Appointment of Compliance Officer
A
Retirement Adviser which is a body corporate or a partnership firm
shall appoint a compliance officer who shall be responsible for
monitoring the compliance by the Retirement Adviser in respect of the
requirements of the Act, regulations, notifications, guidelines,
instructions issued by the Authority.
16. Fees to be charged by the Retirement Adviser
i)
An individual Retirement Adviser offering advice to an individual
prospect and facilitating on-boarding to National Pension System may
charge fees from the prospect, subject to the maximum of charges as
specified by PFRDA The upper ceiling for advisory & onboarding for a
prospect shall be Rs. 120/- which shall be subject to change by PFRDA
from time to time. For subsequent services, the individual Retirement
Adviser may charge Rs. 20/- per transaction or Rs. 100/- annually which
shall be subject to change by PFRDA from time to time. Payment of fee
will be only on completion of the registration process/on-boarding of
the subscriber.
ii) Retirement Adviser which
is a body corporate, firm etc. advising a prospect/subscriber may charge
fees, subject to any ceiling as may be specified by PFRDA, if any. The
fees charged should be as per the written agreement between the
prospect/subscriber and the Retirement Adviser. Further, a Retirement
Adviser shall ensure that fees charged to the prospects/subscribers are
fair and reasonable.
17. Grievance Redressal
(a)A Retirement Adviser shall redress subscriber grievances promptly.
(b)
A Retirement Adviser shall abide by and be bound by the provisions of
the Pension Fund Regulatory and Development Authority (Redressal of
Subscriber Grievance) Regulations, 2015.
18. Penal provisions
In
case of any loss caused to the subscriber/s by an act of the Retirement
Adviser, PFRDA may invoke the Performance Guarantee submitted by the
Retirement Adviser and may have to compensate the subscriber/s in
addition to PFRDA initiating penal action keeping in mind the extent of
violation and level of violation as per the provisions of the PFRDA Act
and applicable regulations.
Source: http://pfrda.org.in
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