M S Shabbir of SenSage Financial Services shares his views on why financial planners should register with SEBI as Investment Advisers.
Register or Regret! It is true today with regard to registration of Investment Advisers. If they waiver in this matter the regulator is sure to pounce for non-compliance after the deadline which ends on 21st October, 2013.
Clock is ticking
All existing practitioners engaged in the business of providing investment advice to clients are given six months’ time to register themselves with SEBI even if they do not strictly meet the eligibility criteria spelt out in the notification. The time given for capital adequacy is one year and for acquiring requisite qualification or certification is two years. New entrants may not find favor if any of the eligibility criteria is not met completely.
What registration means
After the cut-off date the certified financial planners can no longer write financial plans. The word “Adviser” cannot be used; even business cards of any entity can no longer carry the words “Adviser”. On the other hand, post the time limit it is mandatory that all Registered Investment Advisers (RIAs) who number about 17 as on date, carry “Investment Adviser” on their stationery, boards and other materials.
The first movers stand to gain as informed investors be it individuals or corporate are searching for the bold and brave on SEBI website; client conversions through the social media like facebook is now easier for those who are registered.
No love lost
Obtaining a registration does not mean that one should commence the advisory business immediately. In fact, submission of application before the deadline helps in continuing the advisory business till the application is disposed or rejected.
Capital adequacy
Body corporate need to have a net worth of rupees twenty five lakh. Individuals, firms and partnerships are required to have net tangible assets of rupees one lakh. It need not be in the form of hard cash or bank balance as is generally perceived. IFAs hitherto operating without proper infrastructure can come together and form partnership to share the costs of office furniture and equipment which will be mutually beneficial. The costs incurred for purchase of fixed assets which are tangible in nature can be included for capital adequacy.
Legal structure
Those IFAs who are not willing to forego the compensation received from manufacturers are living for today. If joining others means losing identity then let it be said that brands are created by individuals and known by company name. Ideally ARN holding should be in individual name and advisory business as a limited liability partnership or company.
Accounting method
Create a separate accounting system for RIA division within the balance sheet. It is not mandatory that all expenses of RIA should be incurred from the division’s income. Income from the other activities of the company will get interchanged and are generally fungible within the balance sheet.
Compliance a concern
One of the concerns of IFAs is to employ a whole-time Compliance Officer. It is not required that every company employs a whole-time staff. Under sections 383A (1) of the Act companies having a paid-up capital of Rs.10 lakh and above need to obtain a Secretarial Compliance Certificate from a company secretary in whole time practice.
A single whole time Director can be appointed as Principal Officer for Anti-Money Laundering and Compliance. A company secretary in whole time practice can be engaged on annual retainership basis that will guide the Compliance Officer, inspect the books and issue a Compliance Certificate which can be submitted to SEBI.
Conclusion
The need of the hour is that IFAs with specialization in insurance, mutual funds, retirement, real estate, financial planning with expertise in their own areas should suppress their egos and incorporate a company to reduce the capital, operating costs. If polyclinics and corporate hospitals can flourish so can the investment boutique.
The author is Managing Director of SenSage Financial Services Pvt. Ltd. Views and interpretations presented are solely those of the author.
The views expressed in this article are solely of the author and do not necessarily reflect the views of Cafemutual.