Kalpesh Ashar of Fullcircle talks about his experience of being a SEBI Registered Investment Adviser (RIA).
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What preparation did you do to register with SEBI as RIA?
The first thing which I did after taking the decision to register with SEBI was to prepare myself mentally. Changing a business model is a difficult call in any profession. You have to understand the pros and cons of the new business model. I suggest whoever wants to become an RIA should prepare himself/herself mentally.
Though I am a CFP and was already working as a fee based financial planner, it took two months to make up my mind to register with SEBI.
The second step was understanding the nuances. I have thoroughly gone through the regulations to ensure that I have a smooth transition.
Is the process of registering complex? If yes, what difficulties did you face?
The process is complex only for those who are in distribution business. SEBI wants to demarcate distributors and advisers. Distributors have to figure out how they could create an arm’s length distance from distribution once they decide to be an RIA.
In my case, it was a smooth transition as I have clearly shared my existing business model and intention of registering as an RIA. Also, SEBI has designated some officials especially to deal with the advisors for RIA process which helped me quite a lot.
What ambiguities/roadblocks did you come across in SEBIs Investment Adviser Regulations?
There were no major roadblocks as such. SEBI wanted my clarification on minor as well as important points in terms of my readiness to comply with their regulations. This process took around 3 months before I got my approval from them.
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?
Obviously, it will deter corporates and firms to register as RIAs. According to me, it’s a steep hike. SEBI could have maintained status quo. Also, if SEBI wants more people to register as RIAs it should have introduced a fee waiver for the first few months at least.
What are the benefits of registering with SEBI as RIA?
On external front, your status among the fraternity and clients increases manifold. People will have confidence in you since you are the one who is complying with demanding rules and high standards of governance. They see you as a focused, concentrated and authentic adviser.
Similarly, on internal front, because of compliance, you have to establish a strong system for customer servicing and create transparency. These features ensure better service quality to clients.
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?
According to SEBI, any type of advice comes under investment adviser regulation. If you feel that you can play around with words saying I am not doing this (advising) and doing that (assisting people to reach their goal), the regulator will take appropriate action in due course of time. If you want to carry out financial advisory profession honestly, what’s wrong in registering with SEBI?
Secondly, if you are a distributor and earning commission through execution then don’t advice. Being a distributor is just as good as financial adviser. Soon, the SRO will come into existence and distributors have to comply with new norms.
What are your views on the cost of compliance with SEBI's RIA rules?
For existing financial advisers, the cost of compliance is not much. However, if you have a plan to start fresh, it will surely have a financial implication. You should have wealth management software, CRM, secure transaction system etc. to set up an RIA business.
Only 156 have registered as RIAs so far. What are the reasons for a majority of IFAs to not register with SEBI?
There are some ambiguities. Many people are still confused in issues like maintaining an arm’s length distance and other things.
SEBI's RIA rules require IAs to have Rs. 25 lakh net worth. What are your views on capital adequacy requirement?
SEBI wants serious advisers to register as RIAs. High capital adequacy ensures commitment towards profession. According to me, SEBI has set an appropriate limit.
Also, I believe that advisors should have a financial capacity to maintain adequacy. If a person has net worth of a few thousand, how can he advise on few crore?
What kind of due diligence you have to undertake after being an IA?
I have just followed whatever is articulated in the regulation. Also, I have internalised that I am an investment adviser which has helped me to take care of my responsibilities.
What would be your advice to IFAs who are considering registering with SEBI as RIA?
Once you decide to take the plunge, you should tell your complete story to SEBI. Also, you should share intention behind registering as an RIA. You should show the true spirit for becoming an RIA. Initial hiccups would be there but you would be rewarded soon.
