Sebi allows advisers to transact on client behalf

Mumbai: In its latest attempt to make processes smooth for Registered Investment Advisors (RIAs), Securities and Exchange Board of India (Sebi) has allowed them to buy and sell mutual funds on behalf of their clients through the stock exchange platform.

RIAs can now effectively use exchanges’ infrastructure to buy and sell mutual funds with asset management companies on behalf of their clients, something that they could not do earlier. Mutual fund distributors were allowed access to the stock exchange platform in October 2013 to transact in MF schemes.

The current circular is specifically for RIAs and assumes importance in light of the changes being proposed within the regulatory framework to facilitate growth of the RIA segment.

RIAs earn advisory fees from their clients, which, means as per regulation they cannot be compensated via commissions from the mutual fund (MF) manufacturer and have to transact for clients in MFs through the direct plan. Direct plans in MFs are meant for investors who invest without the help of distributors and the expense ratio of the plan doesn’t include commission paid to distributors.

An RIA can advise an investor who then transacts through the direct plan. A direct plan application does not require an advisor code to be added; no adviser can be directly linked at the time of purchase. This made monitoring investments difficult for an advisers.

To overcome this hurdle, in December 2015, Association of Mutual Funds of India asked all fund houses to share direct fund details of investors with SEBI registered RIAs. The mechanism though available, isn’t smooth.

MF Utilities a transaction platform started by AMFI, offers RIAs a platform to access details of client investments made through direct plan. The investors too have to register on the platform and get linked to their RIA. Through the MFU platform, an RIA can facilitate fund recommendations and transaction process with the final confirmation to transact coming directly from the investor.

According to Suresh Sadagopan, a Mumbai based RIA, “We currently use MFU for clients and will wait and watch to see how the exchange platform develops.”

The implementation process for the exchange based platform is yet to be seen. However, this facility does lead to broadening of the market. The advisor can transact in direct plans on behalf of the client in direct plans and this takes away the complexity of sharing feeds from the asset management company (AMC). It also helps if the RIA isn’t registered with MFU or is transacting in a scheme from an AMC which isn’t part of MFU (currently limited to 25 fund houses).

According to Vikaas Sachdeva, chief executive officer, Edelweiss Asset Management Co. Ltd, “Between the three available platforms, MF Utility, and the two stock exchanges, RIA’s now have the ability to transact smoothly on behalf of their clients in direct plans.”

With access to direct plan feeds and the latest facility to transact for clients through exchanges, RIAs have the tools to service clients in a more efficient manner.