Listen to this article
SEBI chief Madhabi Puri Buch today said that RIAs cannot run PMS like services by charging performance linked fees on the portfolio of stocks they recommend. She was speaking at the Association of Registered Investment Advisers (ARIA) event on financial planning and investment advisory held today in Mumbai.
Buch said that the investment adviser can only offer financial advice to their clients. Now, it is up to the client to implement these recommendation of RIA. They can neither charge any referral fee or performance linked fee if their recommendations do well.
Currently, there are three broad categories of RIAs based on the industry practices – those who offer financial planning, those who runs long term buy and hold strategy by recommending portfolio stocks (PMS like structure) and those who are stock tippers.
Buch said that while the regulator is after stock tippers to check instances of malpractices, running illegal PMSs and charging performance linked fee is clearly not allowed under the IA regulations.
Buch further said that RIAs are not entitled to received any other fees other than investment advisory fees. They cannot charge referral fees by recommending other products which are not regulated by any regulator like EB-5 Investor Visa or fractional real estate.
Bush also assured RIAs that SEBI will deliberate with the advisory committee to relax education qualification to hire para planners and examination requirement of exiting RIAs. However, there will be no relaxation to corporatize business after achieving 150 clients, said Buch.
Buch said that the introduction of introduction of a portal where investors can pay advisory fees to registered investment advisor (RIAs) and research analysts (RAs) will help them track activities of investment advisors.
The chairperson also urged RIAs to register with BSE Administration and Supervision Limited (BASL), the first line of regulator. She said that 35% of RIAs are yet to register with the BASL, which is basic requirement to ensure business continuity.
