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MUMBAI : The number of Sebi-registered investment advisers (Sebi-RIAs) in India has stagnated in the last three years despite the boom in the number of investors, according to a government reply to a question in the Lok Sabha.

At the end of October, India had 27.5 million mutual fund investors and 73.8 million demat account holders; against this, there were only 1,324 RIAs; hence, the ratio of RIAs to investors is at 1:76,510, the government reply showed.

The Securities and Exchange Board of India (Sebi) came out with investment adviser regulations in 2013. Under these regulations, RIAs are allowed to charge fees but not commissions, and hence, are supposed to offer a transparent model of pricing to investors. RIAs also have a fiduciary duty to manage investments in the investor’s interests only. The stock market and mutual fund industry has a number of other intermediaries such as stock brokers and mutual fund distributors. However, such intermediaries charge commissions and not fees.

According to the government reply, the number of demat accounts in India grew from 35.9 million in FY19 to 40.9 million in FY20, 55.1 million in FY21 and 73.8 million as of 31 October 2021. However, the number of RIAs inched up from just 1,298 in June 2020 to 1,324 as of October 2021.

“Unlike other professions where regulations came in after the profession had matured, with RIAs, the profession had regulations from the very inception. Many of them are impractical. These include the requirement to re-certify every three years and the requirement that even subordinate staff must have two years’ experience. Then, there are rules on how fees can be charged and at what intervals, as well as caps on fees. Those with more than 125 clients must corporatize and then they must have a net worth of Rs50 lakh," said Suresh Sadagopan, a Mumbai-based RIA. “All this is making the profession unviable even for existing RIAs. I’m not surprised that there is very little growth in the profession. [The rules are] making investment advice from a registered adviser unaffordable and hence unregistered intermediaries, agents or distributors step in," he added.

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