What preparation did you do to register with SEBI as RIA?
We need to develop a regulation compliant process. We have put in place systems to address all the needs of RIA regulation involving people, capital and process.
Why do you think that Indian investors are mature enough to pay fee for financial advice?
In my view, conventional sales approach does not offer differentiation and better experience to clients. Interest alignment between the advisor and advised is not clearly established in such a model.
Through RIA model, advisors have the opportunity to deliver a better investment experience, provide interest aligned advice, manage the investment process continuously and deliver continuously on risk management. A fee is a small cost to pay for investment competence, process integrity and knowledge delivery. I believe that investors are willing to pay if we can deliver on these metrics. Getting the model right is central to charging fees.
Is the process of registering complex? If yes, what difficulties did you face?
The process of registering is not complex. We have to ensure compliance with regulatory norms on well-established criteria. A well-prepared and carefully verified application will be registered in reasonable time. We did not face much difficulty and we appreciate that the regulator was thorough in its process.
What ambiguities/roadblocks did you come across in SEBIs Investment Adviser Regulations?
The regulation is now possibly being updated and a consultation paper is in the public domain. We should see how the newer regulations help make the process of registration simpler and speedier. The current mechanism is elaborate and can be simplified.
Some areas like asking RIAs to do KYC can be done away with as the mutual funds and stock exchanges have elaborate mechanism. This is unnecessary duplication of KYC process.
SEBI has announced 400% hike in the registration fee for LLPs, firms and corporates. Do you think the increase in fee would deter IFAs to register with SEBI?
The fee hike does not affect individual RIAs. However, a lower fee will help corporate entities to come forward and register. There is price sensitivity as the fee based advisory practise in India is still in its nascent stage.
What are the benefits of registering with SEBI as RIA?
Registration as an RIA brings enormous discipline, improves processes, ensure compliance, brings interest alignment and provides credibility.
Financial advisors can continue to charge fee (for making plans, account maintenance etc.) and earn trail fee even if they do not register with SEBI. Why should one register with SEBI?
Investors weigh and prefer the prospect of dealing with SEBI registered advisors. Also, to grow a business and scale, we need to provide a well regulated, regulation compliant model of advisory. In the era of direct plans and zero-brokerage stock broking, we need to offer a better value proposition.
What are your views on the cost of compliance with SEBI's RIA rules?
There are significant costs involved. A low fee-paying advisory model will struggle to meet the costs. This makes scale very essential. We believe that compliance requirements are inevitable though the regulator could simplify the systems and procedures in future to bring in more advisors into the RIA fold.
Only 700 have registered as RIAs so far. What are the reasons for a majority of IFAs to not register with SEBI?
The fear of getting their new advisory model right and the comfort with the existing revenue model that gives predictable cash flows are the main reasons.
SEBI's RIA rules require IAs to have Rs.25 lakh net worth. What are your views on capital adequacy requirement?
This is not very high. Capital adequacy is merely to ensure that only well capitalized entities enter the business. This ensures they sustain and serve customers.
What would be your advice to IFAs who are considering registering with SEBI as RIA?
This will help to create strong goodwill for the business, put us one a sound footing versus larger organizations like banks and national distributors. Client acquisition will also be a lot simpler as the client knows that you are system - regulated and does not have to worry about interest alignment.
