Conflict of interest?
If a pharma company comes out with an IPO can it do a private placement at a favorable price to doctors?
If an amc comes out with an IPO…..to IFA? to RIA? to Bloggers?
Well Sebi has said no. An amc cannot allot shares to IFA. It creates a conflict of interest according to SEBI.
Great. This is what happens when one regulator has too much data. If a builder were to come out with an IPO will SEBI say “no preference should be given to RE brokers” or in other words is it fine with an insurance company issuing shares to its agents? Oops Sebi has no jurisdiction over insurance companies is it?
I know some of the rival amc did not like the private placement. It was sheer envy/jealousy.
Esop/ differential pricing equity is one of the easiest ways to reward a long term relationship. I do not think Hdfc life insurance did it (In fact it was easier for them, they have a tied agency). I remember talking to a CEO of a life insurance company in 2001 and asked him whether they would do so. He said “we have esop but no vendorsop”. Knowing Hdfc life, I am sure they did not want to give it at those prices in 2001. They needed the agents ONLY till the business was built to a particular level. Now these businesses are on auto pilot and the need for agents has gone down.
If I am an agent will I sell more Hdfc assets because I have shares of Hdfc? What prevents me from buying shares of Reliance Nippon today in the market? In fact it is available at a discount. Will my loyalties be more towards Reliance? What if Franklin Templeton gave me phantom shares of their listed entity and bought it back from me after 10 years a high multiple?
How do SEBI and IRDA handle foreign trips that the asset gatherers take them on? Go and check the passports of the distributors. Will these worthies worry about conflict of interest there too?
For those who do not know what I am talking about…read on