Interviews ‘The proposed period of three years should be enough for IFAs to shift from commission to fees’

‘The proposed period of three years should be enough for IFAs to shift from commission to fees’

Vishal Dhawan of Plan Ahead Advisors shares his experience of being an RIA.
Banali Banerjee Nov 10, 2016

What preparation did you do to register with SEBI as RIA?

Considering that we used a predominantly financial planning led approach with most of our investor families already, there was really not much preparation to be done. Since we went in for a corporate registration, there was a need to create a SIDD (separately identifiable division) for the purpose of delivering investment advice. Some of our processes also needed some fine tuning to meet regulatory requirements.

Is the process of registering complex? If yes, what difficulties did you face?

It was very smooth, with the regulator willing to answer queries that we had over the phone.

What ambiguities/roadblocks did you come across in SEBIs Investment Adviser Regulations?

There were a few roadblocks like setting up a separate division, ensuring compliance of all advisors with the regulation 7 of SEBI IA (Investment Advisor) rules, regarding certification and qualification of advisers, and communication with teams as well as clients about the enhanced need for compliance.

What are the benefits of registering with SEBI as RIA?

The SEBI RIA licence clearly differentiates you in the eyes of both clients and internal stakeholders that as advisory firm you are clearly acting in the client's best interest, as you are voluntarily registering as a RIA. As the RIA is subject to strict adherence to many important aspects of advice such as risk profiling and suitability assessments before advising clients, these become the quality standard aspects of your advice.

What are your views on the cost of compliance with SEBI’s RIA rules?

The cost of compliance is there even for IFAs and MF distributors as AMFI has similar rules for risk profiling and suitability assessments before advising clients, so investments in compliance systems and processes has to be done, and therefore that is not much different as a RIA.

Is it feasible to sustain an RIA model only by charging fee?

I think it is feasible to sustain only by charging fee as now the regulator has also allowed to take direct plan feeds.

What would be your advice to IFAs who are considering registering with SEBI as RIA? 

We believe that registering as a RIA is a great way to communicate to your clients that your advisory business is run in a fiduciary format. And if an IFA believes in showcasing that to his/her clients then registering would be a good option. Also, the proposed period of three years would be sufficient for advisors contemplating to make the shift from commissions to fees, as that is good amount of time, to make a smooth transition.



1 Comment
Ranjan · 7 months ago
First of all I don't see any separate benefit which can be given to customers as well as to myself. i am in this Mutual fund advisory business for last 15 years and i feel i am highly successful to create wealth for my customers. How SEBI guarantees that an RIA will not sell wrong product to his customers. As an IFA I am also doing Risk profiling and suitability assessment for my client. Only there will be rules and regulations and processes which has nothing to do with the quality of advise. I don,t think SEBI will check every risk profiling from all the RIAs on case to case basis about the correctness of these profiling etc. Secondly charging fees is hardly possible because presently Investors have now wide options before them to invest in Mutual Fund. Instead of taking advice from RIA they have option to directly purchase any scheme of Mutual fund online or physical submission of application. So they can scrap paying fees to RIA. Thirdly after initial discussion about suitable schemes for investment they have option not to go for investment through RIA. They may act on the same line of advises directly and thereby evade paying fees.
It is not also possible to execute an agreement with the investors regarding paying fees.
Therefore SEBI must abolish the system of direct investment in Mutual fund by any Investors and promote such environment where all AMCs and Registrars will ask direct clients to contact RIAs of the area he /she is residing hinting that investment directly in Mutual fund is not risk free. To minimize risk they must contact RIAs . When option of direct investment will not be there then will be ready to pay fees to RIAs . SEBI must think in this line and give both RIAs and Distributors a level paying ground. Otherwise it will be a futile effort to bring 42000 distributors in the arena of RIA.
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