Sebi eases licensing rules for registered investment advisors—is it enough to boost registrations?

Sebi-registered investment advisers (RIAs), who charge a fee directly from clients instead of commissions from product manufacturers like mutual funds or insurers, offer unbiased, tailor-made advice. Yet, their numbers have been shrinking—from 1,350 a couple of years ago to just 962 now.

That means fewer options for investors seeking conflict-free advice, while commission-driven distributors remain far more accessible.

Last week, the Securities and Exchange Board of India (Sebi) cleared proposals to ease entry barriers and improve ease of doing business for RIAs.

However, according to industry stakeholders, the changes don’t significantly improve the situation. The biggest pain points remain delays in processing applications and renewals, often without clear communication. Advisers are left waiting in limbo or forced to hire compliance officers just to navigate the system.

In 2021, to reduce its operational burden and introduce specialized monitoring, Sebi delegated day-to-day supervision of RIAs to BSE Administration and Supervision Ltd (BASL), a wholly owned subsidiary of BSE. All RIAs must now obtain BASL membership in addition to a Sebi registration, making the process more complex.

Take the case of a Mumbai-based certified financial planner (CFP) with over two decades of experience. Convinced about the long-term potential of conflict-free advisory, he applied for the licence in March. Nearly seven months later, the process drags on. While Sebi granted him in-principle approval on 1 September, paperwork continues, leaving him unclear about the next steps.

“I hired a compliance officer in December to prepare the paperwork. By February, we sent documents to BASL. But I needed a CIBIL report, which itself took months. Finally, all papers were submitted to Sebi’s adjudicating officer on 3 July after BASL approval," he said, on condition of anonymity.

Despite repeated follow-ups, the process hasn’t closed. “After several attempts, I got in-principle approval on 1 September. Now I need to open a virtual account with Sebi and BASL, but there are no details on how to proceed—and Sebi isn’t replying," he added.

Meanwhile, a Delhi-based financial planner, who did not want to be identified, applied for licence renewal well in advance but received silence from both Sebi and BASL.

“I entered the RIA model because I believe in unbiased advice. Yes, the fee-paying culture is limited, especially in North India, but smart clients understand. I want to continue, but endless follow-ups with unresponsive regulators hurt my business. My renewal is pending, and I haven’t collected a penny from clients in two years. I may have to give up the licence," he said.

The Mumbai planner, too, is stuck in limbo because he doesn’t want to onboard clients on a commission model when his advisory licence is “around the corner. “I need to run my family. I have savings, so I’m surviving, but others may not manage the transition," he said.

While Sebi has reduced paperwork—removing the need for CIBIL reports, proof of address, net-worth statements and infrastructure declarations—industry stakeholders say accountability and communication remain missing. “There is no well-defined timeline of how long a process will take or within what period Sebi must respond," said the Mumbai-based planner.

Compliance vs fiduciary responsibility

RIAs, being Sebi-regulated, have to follow strict compliance. This is important to protect investor interest. However, compliance is so strict that individual RIAs and mid-sized corporate advisory firms find it difficult to do so due to a lack of resources and funds.

Pune-based adviser Zafar Shaikh chose to surrender his RIA licence altogether, frustrated by frequent regulatory changes. He applied in 2018, received the licence in 2019, and gave it up in 2022.

“Getting clients was not as much of an issue as keeping up with changing regulations. The regulator does not even send direct communication to the RIA community. You need a full-time compliance officer to stay updated with changing requirements. Corporate RIAs can afford that, but it’s not possible for individual RIAs," he said.

Would he consider reapplying, given the recent relaxations? His answer is firm: “Not at all. The regulatory uncertainty persists. Some RIAs I know painstakingly completed master’s degrees in finance when the eligibility criteria were revised in 2020. In 2024, that requirement was removed, and this year it has been relaxed further. How do we plan a long-term business in such an environment?"

Vikram Biswas, co-founder of Lookinglaz Technologies LLP, a Bengaluru-based RIA firm, says a back-of-the-envelope calculation tells us we burn around 15-20 hours monthly on compliance and other regulatory work and spend around ₹2.5-3 lakh to maintain the standards required by Sebi.

Ajay Pruthi, founder of PLNR, a low-cost fixed-fee advisory platform, takes a different stance, saying compliance is important. “I don't buy the logic that Sebi should relax compliance because distributors, insurance agents, or wealth managers have it easy. We are in the fiduciary business where a certain level of checks and balances is necessary. Yes, it requires money, but let us take it as a business expense. You cannot run a business without cost," he said.

He further stressed that compliance alone is not a reason for dwindling RIA numbers. “Not getting clients in the first few years makes people leave. Advisers only want rich clients who can either pay a higher fixed fee ( ₹ ₹25,000-1.5 lakh) or have high net-worth individuals with more than ₹1 crore under the assets under management model, so that a percentage of it can be their fee. The mass population also needs advice. They are ready to pay, but they cannot give huge fees," Pruthi said.

He added that with the latest relaxation in educational qualifications and experience, the young generation advisers (who are good in tech) can take advantage of this opportunity to scale up and offer financial advisory services to the masses at a reasonable cost.

Among the latest compliances, all RIAs are supposed to have a valid UPI ID to collect fees from clients. “No doubt reaching out to banks and getting it all done is time-consuming, but it is a crucial safeguard as it protects investors from fraud and signals who the genuine advisers are."

Some compliances require relaxation. For instance, all Sebi-regulated entities have to make their websites and digital platforms accessible to persons with disabilities (PWDs), as per a Supreme Court order. They also have to certify this through an accessibility audit. “Our research shows there are only a handful of IAAP auditors, and they are asking about ₹2-2.5 lakh for a website of 7-8 pages. This is a sudden business expense we must bear, and it’s recurring," said Pruthi.

Harsh Roongta, founder of Fee Only Investment Advisers, an RIA firm, highlights a few others: Record-keeping for every client interaction and storing it for years, repeated PMLA/KYC updates, approvals to marketing material, among others, demand time and money. “These should go, especially for individual RIAs."

“While some compliances may not be a big issue, such as registering on the centralized fee collection mechanism (CeFCoM) platform or having a ‘1,600’ number series for all service-related calls for clients, but together everything becomes a burden, especially for an individual practitioner," Roongta added.

What you can do

Be mindful of who you take financial advice from. While RIAs provide full-fledged financial planning, regulations still call them only ‘investment advisers’. “Distributors offering incidental advice brand themselves as financial planners but remain outside Sebi’s purview," said Manikaran Singal, managing director and principal officer, Good Moneying Wealth Planners.

Conflict-free advice comes from RIAs, who charge a fee. Though many are seen as catering only to high-net-worth individuals, many also offer low-cost plans for the masses. As more investors adopt fee-based advisory, the number of RIAs will naturally grow, helping the industry mature under evolving regulations.