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One of our readers sent this query to us:
I am a mutual fund distributor. However, I want to increase my offerings by adding financial advisory practice. I would like to understand can my spouse become an RIA and offer fee based advisory services.
The distributor has requested anonymity.
Dear Distributor,
Thanks for writing to us.
Currently, there is no rule which stops family member of an MFD from obtaining SEBI RIA license to offer fee based advisory services.
However, you and your wife will have to maintain arm’s length distance between both the activities and segregate clients at family level.
By arm’s length, SEBI means you need to have different offices for both this set up with different employees. Also, clients of individuals RIAs cannot avail execution services offered by a family member having ARN. Family includes individual, spouse, dependent children and dependent parents.
Further, individual RIAs are allowed to offer execution services to their clients; however, only in direct plans wherever applicable. This means, even if a product class doesn’t offer direct plan, RIAs will have to ensure that they do not make any money out of it.
Apart from RIA model, you can also explore the newly introduced execution only platform (EOP) model. SEBI defines EOP as any digital or online platform, which facilitates transactions such as subscription, redemption and switch transactions in direct plans of the schemes of mutual funds.
However, you need to float a corporate body before applying for such a license. Also, you need to segregate both the businesses i.e. EOP and MF distribution and avoid conflict of interest (if any). Here also, you need to maintain arm’s length distance between both the functions.
Also, you will have to ensure family level segregation between direct and regular business. For instance, if a father is your distribution client, his son cannot become your EOP client. Family of investor includes individual investor, dependent spouse, dependent children and dependent parents.
I hope we have addressed your query.
Regards,
Team Cafemutual