Shalini Dhawan – Director, Plan Ahead Wealth Advisors shares her experience of being a SEBI registered Investment Advisor.
What preparation did you do to register with SEBI as RIA?
The first preparation was to understand the importance of getting a RIA license in line with our business model. Our task essentially was to figure out - how our business is going to evolve and where the RIA license fit in. We figured that we are going to be an advisory led wealth management business and hence the RIA was an imperative.
Next came the segregation of divisions, processes, activities and team members to align with SEBI regulations.
Is the process of registering complex? If yes, what difficulties did you face?
The process of registering is not complex. The regulator wants us to have a fiduciary responsibility with clients, so our business and organization structure should clearly exhibit that. We did not face any major challenges during registration process.
What ambiguities/roadblocks did you come across in SEBIs Investment Adviser Regulations?
As the industry is evolving, so are the regulations. As is the case with most regulations, they are subject to interpretation. As these evolve, the grey areas which exist will get ironed out moving forward.
SEBI has announced a 400% hike in registration fee for LLPs, firms and corporates. Do you think the increase in fee would deter IFAs to register with SEBI?
We do think the fees hike should have been in a phased manner. The increase will lead to a rethink by prospective applicants on their business models before applying for RIA.
What are the benefits of registering with SEBI as RIA?
Clearly the benefits are manifold. Firstly it’s a declaration to the world and your clients in particular that you are taking a fiduciary advisor position.
Secondly, the fact that there is compliance to adhere to, ensures that your business processes are set and aligned to client interests.
Thirdly, clients have started appreciating the fact that as a SEBI RIA we are being more transparent and communicative than ever, which ensures the foundation of great client relationships and induces greater referrals.
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 purely depends upon each organisation/individual and their business model today and what they envisage in the future.
For e.g. If you were a PMS provider, would you offer PMS services without first getting a PMS license? The answer is No.
What are your views on the cost of compliance with SEBI's RIA rules?
Cost of compliance is definitely an added expense for all SEBI RIAs and it will be quite high especially in the first few years. The question to ponder over is what is the cost benefit tradeoff for your specific business model. The other important item here is to look at how technology can help reduce compliance costs over a certain time frame.
Only 156 have registered as RIAs so far.
What are the reasons for a majority of IFAs to not register with SEBI?
I
think all businesses need time to think and transition. I think that is what is
taking time.
SEBI's RIA rules require IAs to have Rs.
25 lakh net worth. What are your views on capital adequacy requirement?
As
is the case in all related financial services businesses, almost all have
capital adequacy needs; so is the case with RIA. Why should it be any different?
This is what gives comfort to the regulator that you are a serious player in
this industry. It also gives comfort to clients who deal with you.
What are the compliance requirements after
becoming an IA?
I think all compliance is work in progress at Plan Ahead. We periodically review processes to ensure compliance with the SEBI RIA guidelines.
In addition this year as mandated by SEBI, we would be looking at a yearly audit in respect of compliance with the RIA regulations from a member of ICAI or ICSI.
What would be your advice to IFAs who are considering registering with SEBI as RIA?
First think about your business model, then figure out whether the SEBI RIA fits in with your business plan. Accordingly go forth and apply, else do not.
For e.g. if I am very sure that I just want to be in the mutual fund business and /or insurance business only, as that is what my expertise is, then I can use exemptions and need not apply. However, if I feel that I am geared to move to a multi-product advisory model or am preparing to move my business to an investment advisory practice with multi-product advisory then I think the time is right to go ahead and take the plunge!
