Home / Money / Personal Finance /  Why it’s difficult to get an investment adviser in India


A chemical engineer by profession, Ashal Jauhari (44), runs a Facebook group on personal finance—Asan Ideas For Wealth—of 100,000-plus members. He is not in the financial services industry but has helped thousands of families with their finances over the last one decade. He has set up a website, Fee-Only India, along with Pattabiraman Murari, an associate professor at IIT Madras, to give a platform to fee-only registered investment advisors (RIAs). And all this is pro bono. The reason being he can’t turn his passion into a profession due to Sebi’s regulations on RIAs.

“I can’t become an RIA because I don’t have a masters in finance. I can very well do it, but the prerequisite of a five-year experience in the financial services industry is a big deterrent. I will have to do everything that an RIA is prohibited to do to gain that experience. It’s an irony." says Jauhari.

Like Jauhari, there are many others who are well-qualified and willing to become RIAs but for certain regulations issued by the Securities and Exchange Board of India (Sebi). Even those from the industry find it hard to become RIAs due to the heavy compliance burden. No wonder then that there are only 1,343 RIAs now, compared to 1,298 as on 30 June 2020, in a country where record demat and SIP accounts are being opened every year.

Who are RIAs

RIAs are Sebi-registered investment professionals —be it individuals or corporates—who have a fiduciary responsibility towards their clients to provide unbiased financial advice. They cannot sell financial products. They either charge an annual fixed fee or a commission based on assets under advisory (AUA). There are glaring shortcomings in the RIA regulations that need Sebi’s attention.

Impractical pre-requisites

To be sure, Sebi (Investment Advisers) Regulations 2013 welcomed candidates from all fields, albeit with some industry experience. It mandated that candidates should have a postgraduate degree in a finance-related stream or a degree in any discipline with an experience of five years in the financial services industry.

However, through five amendments between 2014 and 2021, Sebi made it mandatory for everyone to have a postgraduate degree in a finance-related stream along with five years of experience in the financial services industry. A certification from the National Institute of Securities Markets (NISM) is needed too. This, even as candidates only have to clear NISM Series V-A: mutual fund distributors certification examination to become a mutual fund distributor (MFD). No experience is needed.

Essentially, one must practice as an MFD and insurance agent, etc. to gain five-year experience before becoming an RIA but cannot thereafter earn commission by selling the same products. The industry says this is impractical.

“If everyone in investment advisory is required to have a postgraduate degree, the universe of competent advisors will shrink, and not in a good way. We need thousands of advisors at a grass-root level providing honest services rather than an elite group of RIAs providing world-beating services," says Sandeep Parekh, founder of Finsec Law Advisors.

The 150-conundrum

Individual RIAs can only have 150 clients. Once they breach this limit, they will have to get a corporate RIA license. Besides, an individual RIA has to have a net worth of 5 lakh. It will have to go up to 50 lakh to apply for a corporate license. “Individual RIAs usually charge about 25,000-30,000 advisory fee in the first year to prepare a comprehensive financial plan and 10,000-15,000 renewal fee from the next year onwards. The 150-client-limit will cap the revenues in the range of 15-20 lakh. How are RIAs going to survive with this kind of top line, considering the compliance cost is high?" says Nishant Batra, co-founder and chief goal planner, Holistic Prime Wealth.

Melvin Joseph, a fee-only RIA, and founder of Finvin Financial Planners, says he knows people who have surrendered their RIA licenses. “I know at least three efficient fee-only RIAs who left after they hit the 150-limit. Now they will continue the business with those 150 and do other businesses for more income," says Joseph.

The fee structure

The fixed fee for RIAs has been capped at 1.25 lakh per annum. Under the AUA fee model, they can charge up to 2.5% commission of assets being advised.“The AUA fee model is flourishing because that is how RIAs can make more money. So, even among RIAs, those charging a flat fee are much lesser," says Joseph.

Take, for example, a client with 20 crore assets. A fixed-fee planner can only charge up to 1.25 lakh from him. However, under the AUA model, even if an RIA charges 1% commission, she will make 20 lakh. Safe to say, the RIAs may tilt towards the AUA model working with clients having deep pockets.

“The lobby of MFDs and those with vested interests is so strong that they don’t want fee-only RIAs to stabilize and investors to become beneficiaries. If that happens, crores of money will go into direct mutual funds," says an RIA who doesn’t wish to be named.

Will the markets regulator ease entry barriers anytime soon? The industry says it will have to wait and watch for now.

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