Kavitha Menon talks to Cafemutual about her experience of being a SEBI Registered Investment Adviser (RIA).
What preparation did you do to register
with SEBI as RIA?
I do not have a legacy of distribution business to deal with. I started my career as an Investment Adviser around the time when SEBI RIA Regulations came into force. I met all SEBI requirements in terms of experience and qualification. Hence no preparation was required on that front. In terms of compliance I had to get some systems for record keeping (CRM, risk profiling etc.)
Is the process of registering complex? If yes, what difficulties did you face?
I think for individual fee-only advisers the process is extremely simple. I sent my application by speed post and received the certificate by the same. No interviews, no visits to SEBI officers, no difficulties whatsoever.
Non-individual entities like corporates, LLPs etc. who are engaged in distribution business have faced certain issues. I believe these issues are mainly to do with SEBI’s insistence on maintaining arm’s length distance between advisory and distribution business.
What ambiguities/roadblocks did you come across in SEBIs Investment Adviser Regulations?
Since I was completely focused on fee based wealth management services, the regulation was fairly simple for me to understand. I did not face any roadblocks while making the application.
SEBI has announced 400% hike in registration fee for LLPs, firms and corporates. Do you think the increase in fee would deter IFAs to register with SEBI?
The increase in fee is steep. Considering that this is a fledgling industry that’s barely finding its feet, this kind of fee will deter IFAs from registering.
What are the benefits of registering with SEBI as RIA?
For the advisor the biggest advantage is added credibility to your role as adviser. For clients dealing with RIAs, there is comfort and trust in dealing with a regulated entity.
Financial advisors can continue to charge fee (for making plans, account maintenance etc.) and earn trail fee even if they don't register with SEBI. Why should one register with SEBI?
It’s like asking if one can travel ticketless. You pay only if you are caught right?
Registering with SEBI is not a voluntary activity. It is a regulation that has to be complied with. If you charge for advice you have to register. It is not optional. Financial planners who charge a fee have to comply. They cannot continue charging fee if they don’t register with SEBI. Funnily many fellow advisors have asked me why I registered considering that there is no way SEBI could find that I was charging fees. My answer to that is that I won’t go against the law and I advise them also do the same instead of waiting to get caught. I must add that SEBI has time and again reiterated its seriousness in implementing this regulation and cracking down on those who have not complied.
What are your views on the cost of compliance with SEBI's RIA rules?
As an individual there is a cost of getting annual audits and software requirements for compliance, but all in all nothing that is backbreaking.
Only 156 have registered as RIAs so far. What are the reasons for a majority of IFAs to not register with SEBI?
IFAs earn big bucks from their distribution business. There is very little revenue from advisory and needless to say it is tough to keep arm’s length distance between advisory and distribution business.
Also most IFAs believe clients won’t pay for advice which is directly a result of the manner in which they have positioned themselves to clients .They have been essentially functioning as middlemen and not as advisors. Hence there is no incentive to move to an advisory model and take the additional burden of registering with SEBI.
Even for those already registered as corporates, many consider their advisory business a cost center and one created merely to comply with SEBI regulation. Despite being registered as advisers they retain their distributor’s identity. There is no honest attempt at running a successful advisory business which in my view is very myopic and merely a show to gain credibility that comes with SEBI registration.
SEBI's RIA rules require IAs to have Rs. 25 lakh net worth. What are your views on capital adequacy requirement?
Since we perform a fiduciary role a minimum net worth requirement is inevitable.
What would be your advice to IFAs who are considering registering with SEBI as RIA?
Register only if you are focused on fee based advisory profession. If you are running a successful distribution business and are not focused on advisory, but consider it a good strategy for the long term, then evaluate the costs required to create arm’s length, registration and compliance versus the income.
Cafemutual will feature series of interviews with SEBI registered investment advisors which will help IFAs get a clear understanding of SEBI RIA regulations.
