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Even as the number of investors has grown sharply over the past 3 years, the number of Sebi registered investment advisors (RIAs) has remained more or less stagnant, a government reply to a Lok Sabha question showed today.
According to government data, India has 2.75 crore mutual fund investors and 7.38 crore Demat account holders, as of 31 October 2021. However, the number of Sebi registered investment advisors is just 1,324. This means that India’s ratio of Sebi RIAs to investors stands at 1:76,510 the government reply showed.
The Securities and Exchange Board of India (Sebi) came out with investment advisor 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 owe investors a fiduciary duty to manage their investments in the investor’s interests only.
The stock market and mutual fund industry has a number of other intermediaries such as stockbrokers and mutual fund distributors. However such intermediaries charge commissions rather than fees.
According to the government reply, the number of Demat accounts in India has grown from 3.59 crore in FY 2018-19 to 4.09 crore in FY 2019-20. The number further increased to 5.51 crore in FY 2021 and 7.38 crore as of 31 October 2021. However, the number of investment advisors has grown 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. They have further tightened and some of them are impractical. These include the requirement to re-certify every 3 years and the requirement that even subordinate staff must be post-graduate qualifications and have 2 years experience. Then there are rules on how fees can be charged, using only one method at a time ( Fixed/ AUA ) as well as caps on fees. Those with more than 150 clients must corporatize, with a net worth of 50 lakh. All of this is making the profession difficult/ unviable even for existing RIAs. I'm not surprised that there is very little growth in the RIA numbers. All this is making investment advice from a registered advisor difficult to access and the intention of taking high-quality advice to all investors is hampered," said Suresh Sadagopan, a Mumbai based Sebi Registered Investment Advisor (RIA).
