Network FP organized a roundtable discussion on "SEBI Investment Advisor Regulations 2013" to understand its implications on financial planners, advisors and investors recently in Mumbai.
The session was chaired & moderated by Industry Veterans Ms. Uma Shashikant, Director, Centre for Investment Education and Learning (CIEL) and Mr. Gaurav Mashruwala, CFP, Financial Planning Practitioner and 12 eminent panelists from the fraternity shared their views and opinions.
20-Point Summary* of Roundtable Discussion
There are many questions arising out of SEBI Investment Adviser (IA) Regulations to which there are no answers as of now but will start emerging after Regulations comes into effect in April 2013.
SEBI has released these regulations with a long term vision of giving credibility to financial advisory profession. These regulations are in line with many other countries which are following similar trend of segregating advisory from distribution after the 2008 global financial crises.
The Regulations will come into effect from April 21st and all financial planners & advisors charging fee should get registered before October 21st 2013 i.e. within 6 months.
Planners & advisors who have started charging already or are inclined to charge fees should seriously consider registering as a SEBI Registered Investment Advisor (RIA). Others i.e. mutual fund distributors & life insurance agents can continue business as usual.
However with time, regulations for even agents and distributors are going to get tighter and there is possibility of commissions coming down further and product sales will be more technology enabled with minimal human interaction.
Planners & advisors can continue to do both i.e. advisory & distribution businesses which even clients prefer i.e. one point contact for all their personal finance needs.
Planners & advisors who can afford to have net worth of 25 lakhs should consider doing both in a Private Limited Company with a Separately Identifiable Division (SID) with arms-length operations.
Planners &advisors who are small and prefer to remain individual should consider separating their distribution business from advisory business by running it under two legal entities i.e. Proprietary, Partnership Firm, LLP. You may consider continuing or transferring distribution business in a Private Ltd Firm which has no net worth requirements.
For small IFAs, it’s important to have a family member involved in the setting up 2 entities or have tie-up with fellow advisors.
The definition and implication of SID and arm’s length in financial advisory business will emerge with time and experience.
Your commissions from existing AUM will not stop if you have formed 2 legal entities. If you want to transfer your commission based distribution business to new entity, it is possible.
Latching on to technology platform for product transactions & compliance will be important for small advisors for taking care of compliance, efficiency and processes.
CFP & CPFA are being contemplated as certifications that will be considered for fulfilling eligibility criteria. However it is not compulsory that you have to register if you are a CFP or CPFA Certificant. More certifications may be added in the list with time.
One can use whatever designation one wants but something like a “SEBI Registered Investment Advisor” will be required to be mentioned in all communications like visiting card, emails, brochures, Hoardings, Nameplates etc.
Registered Investment Advisors will be favoured by consumers in the long run when companies, firms and individuals will start marketing & promoting themselves in a big way as “A SEBI Registered Investment Advisor”. Consumers who have bitten dust many a times by mis-selling will seek comfort in the tag.
Cost of compliance will significantly go up which is a major cause of concern. These costs will have to be passed on to the clients. But these compliances are expected to build credibility for the profession and advisors will be able to raise their fees for the same. The costs will increase to meet the following compliance requirements:
1. Attaining & maintaining education requirements
2. Creating & maintaining legal entities
3. Creating capital adequacy/meeting net worth requirements
4. Meeting infrastructure requirements
5. Registration & Renewal as investment advisor
6. Developing or accessing Risk Profiling / client need analysis applications
7. Rational research to justify the products recommended
8. Documentation & record keeping
9. Reporting to SRO/SEBI
10. In-house or outsourced compliance supervision
17. Clarity on exacts costs of compliance for different types of set-ups will start emerging only once planners/advisors start operating under the new set-up.
18. We can expect an addendum to these regulations or circular from SEBI with clarifications and finer details
19. Advisors who aspire and want to offer financial planning services and charge fees cannot escape these regulations and should prepare themselves for meeting and complying with the requirements. SEBI Investment Advisor Regulations 2013 has its long term gains but will come with short term pains.
20. Planners &a dvisors… should stay calm and continue with existing operations for next 2-3 months at least till April 21st after which clarity on many of the issues will start emerging once SEBI starts accepting registrations.
Panelists
Ajit Menon, EVP, DSP Black Rock Investment Managers
Amit Trivedi, Founder, Karmyog Knowledge Academy
Dhruv Mehta, Chairman, Foundation of Independent Financial Advisors (FIFA)
Hansi Mehrotra, Managing Director, Hubbis India
Karkik Jhaveri, Director, Transcend Consulting
Lovaii Navlakhi, Founder & CEO, International Money Matters
Mukesh Dedhia, Managing Director, Ghalla & Bhansali Securities
Prem Khatri, Founder & CEO, Cafemutual
Rajesh Krishnamoorthy, Managing Director, iFAST Financial
Sumeet Vaid, Founder & CEO, Ffreedom Financial Planners
Suresh Sadagopan, Founder, Ladder 7 Financial Advisories
Vishal Dhawan, Director, Plan Ahead Wealth Advisors
*This summary is prepared based on my understanding from the discussion and based on views of the majority of panelists. It is possible that some of the Panel members might have a different view than what is listed above.
Article courtesy Network FP
The views expressed in this article are solely of the author and do not necessarily reflect the views of Cafemutual.