M. S. Shabbir of Sensage Financial Services talks about his experience of being a SEBI Registered Investment Adviser (RIA).
What preparation did you do to register with SEBI as RIA?
Our firm SenSage was already in the business of fee based advisory from day one. Ours is a corporate set up. Thus, it was easier for us to register with SEBI.
While other IFAs made noise and cried foul, we were convinced that SEBI is giving breathing time to IFAs for a change. We read the notification carefully and furnished the supporting documents required to apply for the registration to SEBI.
We prepared Due Diligence Questionnaire (DDQ) so that SEBI could understand our business model, activities, process, internal systems, controls, and do’s and don’ts. Once DDQ was prepared, it was satisfying to note that our operations were all professional and systems were in place.
Is the process of registering complex? If yes, what difficulties did you face?
The application is just a two-page document. However, a careful reading of notification was required to understand the information sought by the regulator. Also, the compilation of supporting documents including obtaining net-worth certificate from the auditors took some time.
SenSage is already registered with two regulators namely, RBI for full-fledged money changer business and with SEBI as a sub-broker for Religare. Hence it was not new for us to anticipate and meet the expectations of a regulator.
What ambiguities / roadblocks did you come across in SEBIs Investment Adviser Regulations?
The only ambiguity to us was the understanding of “maintaining an arm’s length” in terms of maintaining books of account and signing of bank account. Discussions with industry practitioners cleared many misconceptions. We realised that much like banks, we could have multiple profit centres within the organization.
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?
Initially, we were delighted when we heard about the fee hike – being the first to register, the 400% hike in registration fee would mean an increase in valuation of the company. Actually, speaking it is a showstopper. The fee hike will deter the new entrants who are structured as LLPs or limited liability entities. Many advisers will now be forced to practice in individual capacity. In my view, the fee hike will favor the big players and weed out the smaller advisers. It may be a threat to the survival of a corporate who desires not to scale the advisory business beyond a point where he can do justice to clients.
What are the benefits of registering with SEBI as RIA?
The first benefit is that you get some recognition. Secondly, you are perceived as a serious player.
What are your views on the cost of compliance with SEBI's RIA rules?
The compliance cost has gone up. We have to appoint a chartered accountant and company secretary to help us. With the revised fee structure the cost is likely go up further.
What would be your advice to IFAs who are considering registering with SEBI as RIA?
One should register only if he/she would be able to recover the costs through advisory fee.
Cafemutual will feature series of interviews with SEBI registered investment advisors which will help IFAs get a clear understanding of SEBI RIA regulations.
