What preparation did you do to register with SEBI as RIA?
I was looking for a business model founded on trust and client first approach. So before applying for registration, I had to evolve my financial planning process, risk profiling process, asset allocation methodology, monitoring of portfolio and investment advisory fee. I had to invest in risk profiling software and the portfolio review analytics.
Is the process of registering complex? What difficulties did you face?
The process was not complex but being the first applicant, I had some apprehensions. I had an interaction with SEBI’s investment department officials. They enquired about my background and my plan. On compliance aspects, they got satisfied with my background as Chief Risk Officer for four years and handling of compliance issues at corporate level. In fact, it was a very friendly interaction and I was very much encouraged.
What ambiguities/roadblocks did you come across in SEBIs Investment Adviser Regulations?
I wanted to go for a company registration where the fee was a deterrent. In fact, the revised current SEBI registration fee of Rs. 5 lakhs is a big deterrent for individuals who want to go for registration as a company.
What are the benefits of registering with SEBI as RIA?
The benefit of being a RIA is in having transparency with clients. It becomes easier to build trust. Display of competence and charging a fee for the advice becomes easier.
What are your views on the cost of compliance with SEBI's RIA rules?
The client agreement, risk profiling, process adherence was already being followed by me in advising clients. Some more areas like IT security and documentation (e-documentation) had to be added. My background in handling compliance earlier in my career made it easier to understand the actionables. But yes, for new entrants, cost is a major issue.
SEBI's RIA rules require IAs registering as company to have Rs. 25 lakh net worth. What are your views on capital adequacy requirement?
From affordability view point, it is high for individual RIA and from risk quantification point of view for wrong advice, it is low. Capital adequacy is needed for protecting the down side of various risks. The major risk in advisory is wrong advice which can be better handled by buying a professional indemnity policy rather than prescribing a monetary limit.
Is it feasible to sustain an RIA model only by charging fee?
Currently, the eco system is not favourable for fee model. There is a need to raise awareness about paying fee. Even the recent US Department of Labour (DOL) fiduciary regulation in USA has given fillip to fee model. It may take time but fee model is the future since high cost products are giving way to low cost products in many countries.
What would be your advice to IFAs who are considering registering with SEBI as RIA?
The 3-year time frame proposed by SEBI in its draft regulation is a good opportunity for IFA to prepare for it by upgrading their skill so that they can create better value for clients to command fees from clients.