Melvin Joseph of Finvin Financial Planners shares his experience of being a SEBI registered Investment Adviser.
What preparation did you do to register with SEBI as RIA?
Nothing in particular because my model of fee based planning was a perfect fit with the RIA regulations. I started consultancy with only this model in 2010 after completing CFP.
Is the process of registering complex? If yes, what difficulties did you face?
It is not a very complex procedure. But they ask for many declarations/documents.
What ambiguities/roadblocks did you come across in SEBIs Investment Adviser Regulations?
Nothing in particular that I can think of.
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?
Yes. The advisory fraternity is finding it difficult to convince clients to pay. It may deter small IFAs to register with SEBI.
What are the benefits of registering with SEBI as RIA?
For me it is a recognition of my existing model. As and when the industry matures there will be demand for fee only planners who are registered with SEBI as RIA. But it will take time in India.
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?
This is precisely the reason why very few distributors have registered. Fee only planners is the only category who will fit into SEBI guidelines. Others are finding ways to bypass the regulations.
What are your views on the cost of compliance with SEBI's RIA rules?
There will be expenses on annual audit. Record keeping will not demand extra cost because it was there already.
Only 156 have registered as RIAs so far. What are the reasons for a majority of IFAs to not register with SEBI?
They don’t want to lose their commissions. Some distributors have large AUM which earns them a lucrative trail. Also, it is possible that fee income may not be higher than what one would earn from trail.
SEBI's RIA rules require IAs to have Rs. 25 lakh net worth. What are your views on capital adequacy requirement?
It may not be an issue for large corporates.
What kind of due diligence you have to undertake after being an IA?
We
have to use the title ‘Investment Adviser’ in all communication. We should give
recommendations in the interest of the client. There should not be any conflict
of interest by way of distribution income.
What would be your advice to IFAs who
are considering registering with SEBI as RIA?
If you are ok with limited income from a sunrise sector, please go ahead and register. But wait for atleast 3-4 years to get a decent income from fee alone. Build your fee based practice first. Otherwise, don’t register and continue your commission based practice. Don’t bypass the rules.
