Suresh Narula, Founder of Prudent Financial Planners shares his experience of being a SEBI registered Investment Advisor.
What made you register with SEBI as an Investment Advisor?
I was working as an accounts officer for over 17 years. I was in a dilemma and quite apprehensive to quit my job to start my advisory practice. For me and my family, it was not an easy decision as it would have had a huge impact on my personal and financial life. Even after quitting my job, I spent a lot of time reflecting on my business model. Finally, I decided to pursue fee-only practice. Thus, I decided to register with SEBI.
Is the process of registering complex? If yes, what difficulties did you face?
Initially it looked very complex but I did not face any major difficulties during the registration process. In my case, I just made a clear disclosure about my past model and my proposed model in the application itself. I then personally submitted the documents on April 07, 2014 in SEBI office. While vetting my application by SEBI officials, there was a query raised on 1-2 additional documents. Surprisingly, the registration process was the very pleasant! I got the registration certificate after two months.
What ambiguities/roadblocks did you come across in SEBIs Investment Adviser Regulations?
For me, there was ambiguity in arm’s length relationship between advisory practice and distribution model.
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?
Now, only large entities can afford to register with SEBI. Perhaps, SEBI is restricting small entities who have been registering a private limited company by segregating their business and get into advisory practice.
What are the benefits of registering with SEBI as RIA?
The regulation is intended to clear the confusion among investors about the role of wealth managers, private bankers, portfolio managers and the likes by restricting the unilateral use of the term “Investment Advisors.” Investment advisors will now act in a fiduciary capacity. By law, they would ensure that each investment recommendation they make is in clients’ best interest. If a conflict of interest arises, RIAs are required to inform clients about the same. Additionally, they are required to have a written code of ethics that govern their actions and which discloses how they are compensated.
I pride myself that I have got registered with SEBI as Investment Advisor.
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?
To be an investment advisor, one has to choose between selling a product or advice, not both. If they want to pursue financial advisory profession honestly, they should register with SEBI.
What are your views on the cost of compliance with SEBI's RIA rules?
Being a SEBI registered RIA, we are subject to inspection, audit and compliance. We have to maintain all records like know your customer (KYC), risk profiling, suitability sheets, agreement copies, investment advice, whether oral or written, data on fees charged, etc. All this has to be preserved for at least five years either in electronic or physical form. Of course, there will be recurring expenses on annual audit which is definitely an additional burden for all SEBI RIAs and it will be quite high, especially in the initial years. 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?
There are many factors. Firstly, there is fear of onerous compliance. Secondly, advisors find it difficult to convince people to pay a fee. Thirdly, many IFAs do not wish to give away their distribution business. Even those who have registered with SEBI as investment advisors have not given up their distribution business. They have transferred the distribution outfit to a firm registered in an alternate name — that of wife, relative or a partner.
SEBI's RIA rules require IAs to have Rs. 25 lakh net worth. What are your views on capital adequacy requirement?
The capital adequacy is not very high. SEBI wants serious advisers to register as RIAs. High capital adequacy ensures commitment towards profession. It should not be an issue for individuals and large corporates.
What would be your advice to IFAs who are considering registering with SEBI as RIA?
As compared to ‘IFA’ and ‘financial planner’, when you acquire a title such as ‘SEBI Registered Investment Advisor’, it conveys a lot of respect and security; since you are regulated by an entity like SEBI. If you really want to win clients’ trust and truly understand their goals, you must take the plunge.
