Rohit Shah of Getting You Rich shares his experience of being a SEBI registered Investment Advisor.
What
preparation did you do to register with SEBI as RIA?
We reviewed our processes for compliance and
segregated execution business.
Is the process of registering complex? If yes, what difficulties did you face?
The process is very simple. If we comply with all the requirements, the application can be completed in less than two hours. The only difficulty I faced was that it took me more than 6 months to get the SEBI license.
What ambiguities/roadblocks did you come across in SEBI Investment Adviser Regulations?
The rules and terms have not been explained well. For instance, conflict of interest is not elaborated.
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?
This is absolutely unfortunate and unreasonable. This will discourage most of us to go in for a private limited company registration.
What are the benefits of registering with SEBI as RIA?
This is certainly a niche at the moment so it helps in client acquisition. The regulation needs us to take a process driven and client oriented approach. This is certainly the way to go.
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?
People who value integrity neither wait for the regulation nor do they need a certificate from SEBI. That said, what kind of behavior are we demonstrating to our clients when we ourselves do not respect the law of the land? In my opinion, any one charging fee for investment advice would be breaching the law if not registered under the act.
What are your views on the cost of compliance with SEBI's IA rules?
Being a SEBI registered RIA has its costs. We have to spend on documentation, digitization, software, audits, etc. The cost is onerous and it could be difficult to sustain our existing model. However, we don’t have a choice. We need to relook at our costs, review discretionary spends and try to manage our costs better. One approach is to look at how we can use a scalable model to serve more clients and spread such overheads over a larger base.
Only 156 have registered as RIAs so far. What are the reasons for a majority of IFAs to not register with SEBI?
There is a bit of ambiguity in the law and segregating or giving up distribution business is no easy task. Fortunately, it seems that so far, SEBI has not been very pushy on non-compliance, though this can change any moment.
SEBI's RIA rules require IAs to have Rs. 25 lakh net worth. What are your views on capital adequacy requirement?
This is unfortunate, unreasonable and in an ideal world, unacceptable.
What changes have you brought about after registering with SEBI as IA?
- Segregated distribution business, identified team members and created a new website for them
- Modified the templates (letter of engagement, disclaimer and disclosure) to segregate the distribution arm
- Started giving elaborate explanation of what we recommend, why we recommend
- Started product comparison and reviews on the blog to substantiate our recommendations
What would be your advice to IFAs who
are considering registering with SEBI as IA?
Take guidance from existing RIAs. Prepare your application meticulously and diligently follow up with SEBI.
Cafemutual will feature series of interviews with SEBI registered investment advisors which will help IFAs get a clear understanding of SEBI RIA regulations.
