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SEBI has issued a consultation paper in which it has proposed allowing insurance agents, CAs and other professionals like teachers who are not directly related to the securities markets to become part time registered investment advisers (RIAs).
SEBI said, “The applicant shall be considered eligible for registration as part-time IA/RA, if he is engaged in activity/business/employment permitted by any financial sector regulator or an activity under the purview of statutory self-regulatory organisations such as Institute of Chartered Accountants of India (‘ICAI’). For example, tax planning by CA, insurance agent having license from IRDAI.”
Further, if an employee wants to become a RIA, she has to obtain NOC from her respective company. The part time RIAs will have to ensure maintaining arms-length distance between both the activities.
The part time RIAs will have to clear the NISM examination to obtain a part time RIA license. Also, they can service up to 75 clients.
However, the market regulator clarified that any person who is managing money for clients or providing recommendations on assets for investment like stockbrokers and mutual fund distributors (MFDs) cannot become part time RIAs.
Suresh Sadagopan of Ladder7 Wealth Advisories believes that the appointment of part time RIAs may not serve the community. “Clearing the NISM exam doesn’t necessarily make you an advisor. There is a lot of work that goes beyond financial planning and only full time and serious professionals can do it. I think part time RIAs may dent the reputation of RIAs.”
Here are other key proposals relevant to the advisory community:
Relaxed criteria
A person having a graduate degree can become an individual RIAs or principal officer of a RIA firm.
Further, there is no need to have prior experience to become RIAs or associated person of RIAs (employees). Currently, an individual must have 5-year experience to become RIAs and 2 years of experience to work as para planners with RIAs.
Also, SEBI has proposed doing away with the recurring examination at the time of renewal. While applicants have to obtain NISM XA and XB examination to get RIA license, a certification on incremental changes and development will be sufficient for renewal. Such a certification has to be obtained before expiry of the validity.
Ease in net worth requirement
RIAs will no longer be required to maintain net-worth of Rs.5 lakh and Rs.50 lakh for individual RIAs and non-individual RIAs, respectively.
The market regulator has proposed the introduction of maintaining a deposit lien instead of net worth.
The amount of deposit will be:
· Rs.1 lakh for up to 150 clients
· Rs.2 lakh for 151-300 clients
· Rs.5 lakh for 301-1000 clients
· Rs.10 lakh for over 1000 clients
Flexibility in charging of fees
RIAs can now change the mode of charging fees for a client at any time without any restriction. Currently, RIAs are allowed to offer two models on fees Rs.1.25 lakh per annum or 2.50% per annum on assets under advisory. If a client wants to shift from fixed fee model to percentage on assets model, he has to wait for 12 months to incorporate such a change.
Relaxation in requirement for corporatisation by individual RIA
SEBI has proposed allowing individual RIAs to corporatise their business after attaining 300 clients or Rs.3 crore fee revenue during a financial year.
Currently, RIAs having 150 clients have to obtain a non-individual license to continue the business.
Reduced compliance burden
Non-individual RIAs can appoint a business head or unit head who is responsible for the overall functioning of the business as the Principal Officer. Other RIAs can appoint a managing director or designated director as the Principal Officer.
For partnership firms, at least one partner has to be appointed as the Principal Officer.
Further, RIAs are allowed to appoint independent professionals as compliance officers. Simply put, RIAs can outsource CAs/CSs and CMAs as compliance officers instead of appointing a full-time employee.
Clarity on scope of advice
Investment advice on various assets like gold, real estate which are not regulated by financial regulators and other ancillary services such as estate planning and tax planning will not be considered under the scope of advice, clarified SEBI.
RIAs will be required to float a different company to offer such services with another identity or brand name.
However, RIAs can advise on regulated products like NPS and insurance subject to the jurisdiction of the concerned financial regulator.
Expanding opportunities
RIAs can also provide services of research analysts to clients. However, they will have to maintain an arms-length relationship between both activities.
SEBI believes that these proposals will bring more RIAs in the industry. SEBI said, “Over the last few years, owing to the growth of securities market and technical advancements therein, Indian securities market has seen considerable increase in domestic investor base. However, the number of IAs/RAs today is not commensurate with the large investor base and the ratio of investment adviser per million populations is very low as compared to a jurisdiction such as the United States of America. It is necessary that the services of IAs and RAs are available to a wider number of investors in order to enable them to make informed investment decisions. Hence, in order to cater to the needs of a large number of investors in the country and the potential for growth in wealth creation for investors, a much larger number of IAs/RAs is required.”
Vishal Dhawan of Plan Ahead Wealth Advisors said that the move will ensure ease of doing business. He said, “Relaxation in education criteria and net worth requirements are some welcome moves. However, floating a separate entity for estate planning and tax planning has to be revisited as these activities are part and parcel of advisory services.”
Seconding his views, Sadagopan added that floating a separate company will be unviable for RIAs as well as their clients. He further said that SEBI has provided relief in various aspects of business, which is expected to increase the number of RIAs.
