What preparation did you do to register with SEBI as RIA?
I had registered as a SEBI RIA in 2015, as I wanted to start online financial advisory services. At that time, apart from the SEBI instructions, there was little information on how to register. However, the SEBI instructions were quite detailed and it was prompt in responding via emails.
In terms of the preparation, I was ready with all the pre-compliance work such as net worth certification, passing of exams - Investor Advisor exam A and B. Since I did not have a commission-based business, I did not have any thoughts on commission versus fees.
Why do you think that Indian investors are mature enough to pay fee for financial advice?
Back in 2015, it was very difficult to even explain what fee based investment was. No one wanted to pay a single rupee and many did not believe that their friendly LIC agent was, in fact, taking commissions. The situation has improved with more RIAs being on-boarded and everyone in the RIA community educating the masses. Having said that, it is still very difficult to acquire customers.
Indian customers are mostly ad-hoc purchasers of financial products and look only for short-term tax saving goals. In addition, when we approach customers explaining to them how commission based practice is different from fee-based practice; there is a sense of disbelief. They are concerned whether fee-based services is another way to extract additional money from the customer.
Is the process of registering complex? If yes, what difficulties did you face?
Registration is not that difficult. It is now online and made easier. The only problem is running around for the issuance of the demand draft twice, first before registration and second time after approval.
What roadblocks did you come across in SEBIs Investment Adviser Regulations?
I have no problems with the current regulations. I think the current regulations of maintaining KYC records and ensuring meeting the minimal net worth for an Individual RIA is manageable.
SEBI has announced a 400% hike in the registration fee for LLPs, firms and corporates. Do you think the increase in fee would deter IFAs to register with SEBI?
Yes, many are deferring, and many are registering as an Individual RIA. Some continue to run their existing company as a separate entity. The fees are too high for financial companies that are already struggling with other compliance requirements. The high fees is a good way to eliminate the bad lemons, however, it also leads to low registration thereby preventing the emergence of a more stronger, more vibrant RIA community.
What are the benefits of registering with SEBI as RIA?
The immediate result is the tag with "SEBI"! This brings in a bit of confidence when we talk to potential customers. The stricter entry rules also build confidence in the customers.
Financial advisors can continue to charge a fee (for making plans, account maintenance etc.) and earn trail fee even if they do not register with SEBI. Why should one register with SEBI?
It is better to be on the side of compliance and be ready for the RIA world. In more developed countries, fee-only advisory is popular and it is only a matter of time that Indians will realize the importance of fee-only RIAs. With the RIA numbers rising, albeit slowly, the image of the financial advisory services will improve. In addition, being RIA enables you to provide financial advice which is the key element in financial advisory, while the documentation part is mere administrative.
What are your views on the cost of compliance with SEBI's RIA rules?
For an Individual RIA, the costs seem reasonable, as the only requirements are to maintain the net worth and ensure documentation of the advisory and customers.
Only 700 have registered as RIAs so far. What are the reasons for a majority of IFAs to not register with SEBI?
Most do not see value in being RIA. Indian customers do not really care - all they need are a few mutual funds and insurance policies. Once the customers see value in getting advice from an RIA, then the IFAs will move to the RIA model. The regulation is becoming strict, but that will take time.
What kind of due diligence you have to undertake after being an IA?
It is important in these days of privacy scams to ensure that customer records are kept confidential and secured so that no customer information is leaked. Maintaining transaction details, ensuring that the right disclosures are in place are some other items on the checklist.
What would be your advice to IFAs who are considering registering with SEBI as RIA?
Go for it, worth the effort, and be the RIA who can change and influence the future.
