The number of Registered Investment Advisors (RIAs) with SEBI is on the rise.
When SEBI introduced RIA regulations in 2013, around 100 IA registered themselves with SEBI in the first few months. The number has since then gone up to 367. While the number is still small, it is an encouraging trend.
Of the 367 RIAs, 55% are individuals and 42% are corporates. Corporates include companies, LLP (Limited Liability Partners) and body corporates. The remaining 3% are registered under the category of ‘others’.
So there are a number of factors for the steady rise in number of RIAs:
Self-motivation
Many individuals and corporates are self-motivated to register as RIA. They believe it increases transparency and strengthens their bond with clients.
“Clients trust working with us. They have a comfort working with fee-based advisors as they know we won’t push financial products just to earn commissions” says Kavitha Menon, a SEBI Registered RIA from Mumbai.
A vigilant SEBI
SEBI has become more vigilant to make sure that distributors are not circumventing RIA rules. In fact, the regulator has imposed heavy fines on firms and individuals providing advisory services without being registered as an RIA.
Mumbai based RIA Prakash Praharaj says, “There are two kinds of people registering - those who are self-motivated and others who are apprehensive about SEBI regulations. While some distributors are registering out of fear because they don’t want to be on the wrong side of the law, others want to develop a sustainable business by institutionalizing their practice.”
Similar views are echoed by Bengaluru based advisor Mimi Partha Sarthy who recently got her firm Sinhasi Consultants registered with SEBI as RIA. “We choose to register ourselves as a corporate as we were anyway following all the rules laid down by SEBI. Being a SEBI RIA would be a USP for our planning and advisory services.”
Commissions from distribution arm
SEBI has provided a provision to banks, NBFCs and body corporates to offer execution services provided they maintain an arm’s length relationship between the activities as investment adviser and distribution or execution services. Thus, many distributors have registered with SEBI by forming a subsidiary for execution services. This helps them get a steady trail.
Direct feeds
Initially, the feeds of direct plans were not available to RIAs and this was one of the hindrances for distributors to register as RIA. Recently, AMFI has allowed fund houses to provide direct feeds to RIAs.
Awareness
Another reason for the growth in RIAs is increased awareness among clients. “Investors are becoming more aware. Thus, some clients prefer to deal only with RIAs,” points out Vishal. Thus, distributors who don’t want to lose out to competition are preferring to register with SEBI as RIA.
Future
While the RIA registrations are growing, the growth is still minuscule, say distributors. “There are over 1,000 CFPs who practice fee based advisory. There are so many CFAs and NISM degree holders. So the potential is huge. 367 RIAs is a miniscule number,” says Jayant Vidwans, a SEBI registered RIA.
Roadblocks
Distributors say that the onerous rules and high compliance cost is one of the main reasons deterring IFAs to register as RIA.
Here are a few reasons which are preventing distributors to register as RIA:
- The fee for body corporate and company is too high. SEBI raised the registration fee from Rs. 1 lakh Rs. 5 lakh in 2015.
- A vast majority of advisors depend on commissions received from AMCs and believe that fee-based model won’t be able to cover their costs.
- The information required to register as a RIA is very detailed.
- Compliance cost is high
