Lovaii Navlakhi, Founder and CEO of International Money Matters shares his experience of being a SEBI registered Investment Advisor.
What preparation did you do to register with SEBI as RIA?
We had to make few process changes once we decided to register with SEBI. We had to put in place new technology for CRM and risk profiling. Also, we made some changes in the organizational structure in line with the norms stipulated by SEBI.
Is the process of registering complex? If yes, what difficulties did you face?
The process was very simple. The application form requires us to give a brief about our activities, business plan, net worth certificate and CIBIL report. We didn’t face any difficulties. We were asked for a few additional declarations before getting the license.
What ambiguities/roadblocks did you come across in SEBIs Investment Adviser Regulations?
Some ambiguities with respect to certification and qualification norms needed to be clarified.
SEBI has announced 400% hike in registration fee for LLPs, firms and corporates. Do you think the increase in fee would deter IFAs to register with SEBI?
Yes, some LLPs and firms may not register considering the cost. However, for true advisors this cannot be a deterrent, and they will weigh the benefits. For corporates, I do not see this cost as a major factor for not registering.
What are the benefits of registering with SEBI as RIA?
Ø Privilege of being called a SEBI registered Investment Advisor
Ø Gaining greater client confidence – discerning clients already are seeking RIA’s
Ø Processes in client engagement will help understand and deal with the client better
Ø Lesser competition
Financial advisors can continue to charge fee (for making plans, account maintenance etc.) and earn trail fee even if they don't register with SEBI. Why should one register with SEBI?
SEBI has taken a step in protecting the interests of the investor community by way of this regulation which stipulates that only registered advisors can give advice.
Not registering with SEBI and yet giving advice would mean working out of the legal framework. IFAs who are doing so might face issues with SEBI at some point of time. Also, registering with SEBI adds to one’s credibility and thereby the business.
Further an IFA can call oneself an advisor only if he/she has registered under these regulations.
What are your views on the cost of compliance with SEBI's RIA rules?
Costs are part of the business and this head did not exist earlier. Investment in technology and audit costs will rise.
Only 199 have registered as RIAs so far. What are the reasons for a majority of IFAs to not register with SEBI?
· Advisors whose main line of business is distribution may not see value in registering with SEBI
· The registration and the capital adequacy norms may be deterrents in case of some IFAs
· Many IFAs are waiting on the sidelines, but they should now jump in
SEBI's RIA rules require IAs to have Rs. 25 lakh net worth. What are your views on capital adequacy requirement?
This is essential in the movement of financial advice from a profession to an industry and the resultant benefits. It is required considering the responsibility an IFA shoulders in shaping an investor’s financial future.
What kind of due diligence you have to undertake after being an IA?
- One would need to appoint a compliance officer to take care of the norms
- Appoint an auditor for certifying that the regulations have been complied with.
- Have an internal audit mechanism to ensure compliance with the regulations
- Ensure adequate technology requirements are met to carry out risk profiling and CRM norms
What would be your advice to IFAs who are considering registering with SEBI as RIA?
Registering
would definitely give you an edge over unregistered IFAs. Go for it if advisory
is your forte.
