RIAs can now charge fees up to Rs. 1.51 lakh per family in fixed fees

SEBI has released new regulations for registered investment advisors in which it has allowed them to charge an annual fee of up to Rs.1.51 lakh per family under the fixed fee model. The market regulator has hiked this fee from Rs. 1.25 lakh.

The fee limit for exiting clients cannot be changed until the expiry of current engagement or till June 30, 2025, whichever is earlier.

There is no change in the assets under advisory fee model. This means RIAs can continue to charge an annual fee of up to 2.50% on the assets they manage per family.

The regulator has also asked RIAs to maintain a deposit based on the number of clients managed.

• RIAs will maintain this deposit with a scheduled bank marked as lien in favor of Investment Advisor Administration and Supervisory Body (IAASB)
• The deposit amount can be revised based on the maximum number of clients on any day during the financial year. This revision can happen latest by April 30 of the subsequent financial year
• Existing RIAs will have to submit their deposits by June 30, 2025
• For new RIAs, the deposit requirement will be effective immediately

Registration as an RIA and RA

• A research analyst can be granted a certificate to work as an RIA if he complies with the regulations and provides an undertaking to clearly segregate investment advisory and research services

• A part-time RIA is an individual or firm which is engaged in any business unrelated to handling money or providing recommendations
• Any applicant engaged in business activity permitted by self-regulatory organizations like Institute of Chartered  Accountants of IndRIA (‘ICAI’),  Institute  of  Company  Secretaries  of  India  (ICSI),  Institute  of  Cost Accountants of India (ICMAI) etc. can apply to become a part-time RIA
• People who provide advice/recommendations on assets like gold, real estate, cryptocurrency etc. are not eligible to become part-time RIA
• Part time RIAs will be required to have the same educational requirements as the full-time RIAs
• Part time RIAs will have to give an undertaking to ensure that their investment advisory activities will be segregated from their other activities
• While providing their other services, part time RIAs will have to provide a prominent disclaimer that the activities are not under the purview of SEBI and no complaint for these services can be made to the regulator
• Part time RIAs will have to disclose their other activities to their clients and ensure that there is no conflict of interest between their RIA activities and other activities

Designation of ‘principal officer’

• In case a partnership firm registers as non-individual investment advisor, one of the partners have to be designated as its principal officer
• If no partner of the partnership firm has minimum qualification and certification requirements, it can apply for registration as a limited liability partnership or a corporate body

Appointment of an independent professional as compliance officer

• A non-individual RIA can appoint an independent professional who is a member of ICAI or ICSI or ICMAI or member of any other professional body provided he has relevant certification from NISM

• In this scenario, the principal officer will have to submit an undertaking to IAASB/SEBI that principal officer will be responsible for monitoring the compliance

• A non-individual RIA can also appoint an independent professional holding NISM certifications as compliance officer

Activities undertaken by RIAs

• RIAs can only give advice on securities falling under SEBI regulations

• However, RIAs can provide financial planning services, which includes products or services not regulated by SEBI provided they take undertaking from the client and make relevant disclosures

Use of AI

• Any RIA who uses AI will be responsible for security and confidentiality of client data or any data used to give investment advice. They will have to make disclosure of extent of using such AI tools to clients

• Existing RIAs will have to comply with these requirements by April 30, 2025

Registration as non-individual RIA

• If any individual RIA exceeds 300 clients or fees collected exceeds over Rs. 3 crore, she has to apply for in-principal registration as non-individual RIA

• The in-principal registration as non-individual RIA will be valid up to three months within which time RIA is required to complete the transition from individual to non-individual

Client level segregation

• RIAs who provide advisory services exclusively for institutions and accredited investors are not required to segregate investment advisory and distribution activities after getting a waiver from the investor/client

• All other RIAs will have to provide segregation of advisory and distribution activities at family and group level

Client agreement

• All RIAs will have to give in writing in their most important terms and conditions sheet that they cannot execute any trade or purchase without client’s consent

• RIAs are also required to provide guidance to their clients in their agreement on the Centralized Fee Collection Mechanism for RIA and RA

• RIAs can take consent of the client by physical signature or Digi locker enabled Aadhar based e-signature or any other legally acceptable mode

Record maintenance

• RIAs who provide implementation or execution services will have to maintain call recording of every consent if it is taken through a phone call and maintain time stamps

Audit requirements

• RIAs will be required to complete their annual compliance audit within six months of the end of the financial year and submit a report to IAASB/SEBI within one month of the date of the report

• Any adverse findings will have to be submitted within a month of the report date but also before October 31

• RIAs will have to maintain an annual certificate from a member of ICAI/ICSI/ICMAI or any auditor confirming the compliance report to confirm client level segregation within six months of the end of the financial year

• RIAs are required to publish this audit report and any adverse findings on their website and share it with their clients

• RIAs will have to ensure compliance with these audit requirements for FY24

Website requirements

• RIAs are required to maintain a functional website containing all details specified by SEBI