At least two large wealth management firms have surrendered their RIA license. Henceforth, they will offer MF distribution services only to their clients.
IIFL Wealth and Motilal Oswal Investment Services have surrendered their RIA license. In fact, both the companies have communicated to their investors that all investment advisory related activity will end from October 1, 2020 and no fees will be charged from now.
In a letter sent to investors, IIFL Wealth said that IIFL Wealth Management will continue to offer distribution and broking services to clients. The company clarified that it will not offer investment advisory services and hence it will not charge any advisory fees from October 1, 2020.
For all investment made up to September 30, 2020, the company will request AMCs to offer direct feeds for reporting purposes to clients directly. Such a reporting will continue till December 31, 2020, said the company. The company has also requested clients not to use their RIA code to invest in direct plans of mutual funds.
In another client communication, Motilal Oswal Investment Services informed clients that the company would not offer investment advisory services from October 1, 2020. The company has said that it will give them a list of RIAs if they wish to avail investment advisory services.
A senior bank official requesting anonymity said that his bank will continue to do MF distribution business. However, the company is evaluating if they should continue their advisory business under its broking arm. “Clearly, the cost of compliance under RIA model has gone up substantially. This cost has to be passed on to clients. And I don’t think that clients will be willing to pay higher fees just because our compliance cost has gone up. The RIA model has to make commercial sense for all stakeholders i.e. advisors and clients,” he said.
Another senior official of a large wealth management firm pointed out that the current regulations has clarified that RIAs are no longer allowed to run a proprietary book which has led to surrendering of RIA licenses.
The recent regulations have brought greater clarity on what RIAs and MFDs can do and not do; leading many of the players to finally choose a business model one over the other, said Feroz Azeez, Director & Head Investment Products, Anand Rathi.
Amit Bivalkar of Sapient Wealth told Cafemutual that many institutional players have been surrendering RIA license because they have PMS license under which they can run PMS on their own or distribute non-discretionary PMS.
Cafemutual has spoken to four other large wealth management firms and three companies have confirmed that they are actively evaluating the option of surrendering their RIA license.
