How Sebi plans to make life easier for registered investment advisers
Sebi is now taking several steps to encourage more people to take up investment advisory.
MUMBAI : Nine hundred and six. That's how many fee-collecting investment advisers, or so-called Sebi-registered investment advisors (RIAs), India has for its 1.5 billion population, according to BSE.
The Securities and Exchange Board of India (Sebi) is now taking steps to increase that number by making life easier for existing RIAs and incentivizing others to join.
Here’s a list of proposals Sebi approved during the recent board meeting:
Past performance
Sebi has allowed RIAs and research analysts (RAs) to share past-performance data with clients, though only in one-to-one communication. The format or the template for sharing data will be developed in consultation with the industry forum and certified by a member of ICAI/ICMAI.
The data-sharing format will remain available only until two years after the operationalization of the Past Risk and Return Verification Agency (PaRRVA). On 4 April, Sebi formalized a plan to begin PaRRVA's implementation, which will validate performance claims of regulated entities, research analysts, and algorithmic trading providers.
“The proposals say we can share performance with clients after it is validated by a member of ICAI/ICMAI. However, it’s provided only when a client or prospective client asks for it, and we cannot showcase it to the masses like on social-media platforms or as advertisements," said Vivek Rege, an RIA and founder of VR Wealth Advisors.
Allowing a second opinion
When RIAs meet prospective clients, they already have existing investments with mutual-fund distributors (MFD) with built-in commissions in the form of a regular plan. Current regulations say RIAs cannot charge a fee on regular assets, as there is a commission that the client is paying to the MFD on that asset. Many RIAs wanted to charge advisory fees on those assets, as clients wanted to get a second opinion on those assets, which was not allowed prior to this.
Sebi has now allowed RIAs to give a second opinion to clients on pre-distributed assets and charge a maximum of 2.5% of the asset's value per annum. “RIAs shall disclose to the client about the incidence of dual charges, i.e., advisory fee and cost towards distributor’s commission on such assets, and shall seek annual consent from the client for providing a second opinion and charging such fees," according to the recent Sebi board meeting release.
“Allowing the RIAs to charge on existing assets under regular plans, after proper disclosure to the clients, is now aligned with real-world needs," said Suresh Sadagopan, RIA and managing director and principal officer, Ladder7 Wealth Planners Pvt. Ltd.
Relaxing entry barrier
The entry barrier to becoming an RIA has also been relaxed. Before December 2024, applicants needed to have five years of experience in a related field and a two-year postgraduate degree in finance or a related field to qualify for an RIA licence. After December 2024, the experience requirement was removed, and only a graduation degree in finance or a related field (as specified by Sebi) was required.
The requirement has been further relaxed to allow graduates in any field to apply for an RIA licence. “Many engineers and people from other backgrounds are good candidates for the RIA licence, and this will make it easier for them to apply for the RIA licence," said Rege.
However, Sadagopan said, “Bringing down the entry qualifications to any graduate and doing away with the experience requirements for RIAs is not warranted. RIAs were not asking for a complete dismantling of entry requirements, which will have an impact on the kind of people who may come into the profession now and the effect on the advisory profession."
Easing the corporatization process
RIA applicants can opt for the individual RIA licence or the corporate licence. However, when an individual RIA licence holder reaches 300 clients or ₹3 crore in annual revenue, whichever is earlier, they need to transition to a corporate licence. Before this, an individual RIA who reached this threshold was not allowed to take new clients unless they transitioned to the corporate licence.
In the latest board meeting, Sebi has said individual RIA licence holders can now take new clients during the transition period, and also relaxed the timelines for transition from an individual licence to a corporate licence.
Other relaxations include the removal of the requirement to show proof of address while seeking registrations, removing the requirement to furnish CIBIL scores, net worth/asset liability statement, infrastructure details, etc.
“It’s a welcome move that these requirements are removed as they are not required to provide investment advisory services in the first place," said Rege, who was the former chairperson of the Association of Registered Investment Advisers.
What’s missing?
Experts said the market regulator should look at graded regulations, which means RIAs with more clients will be subjected to more regulations than the smaller ones. Currently, someone starting with one client and someone with 100 clients have to follow the same regulations. They also said approvals of advertisements should be re-examined as they hinder how RIAs can market their services.
“There is a need to enable fees for advisers to be collected from investor portfolios directly, with full disclosure, to enable a smoother approach to fee collection, besides allowing investors to see post-fee returns, which once again increases transparency and is in investors' interest. Supporting this fee to also be a tax-deductible expense should give a much-needed impetus for investors to transition to fee models," said Vishal Dhawan, RIA and founder of Plan Ahead Wealth Advisors.
The details of the proposals will be shared in the coming weeks in the form of a circular.
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