Shilpa Wagh shares her experience of being a SEBI registered investment advisor.
What preparation did you do to register with SEBI as RIA?
We have been primarily into fee based financial planning service since 2011. We introduced certain new practices in the business before registering with SEBI. We also surrendered our ARN as we wanted to operate on the fee only model.
Is the process of registering complex? If yes, what difficulties did you face?
The process of registration for individual license is quite simple. However, one must have clarity about their business model. SEBI can ask certain questions like how you are going to ensure that your plan is implemented by client, etc. For us, being fee only financial advisors, this part was clear. But in case of distribution assistance, disclosures and evidence of arm’s length is necessary.
What ambiguities/roadblocks did you come across in SEBI’s Investment Adviser Regulations?
Conflict of interest about advice given on any investment instrument is a very confusing clause. Also, exemptions section is not very clear. Arm’s length requirement is left to the interpretation of advisor and the SEBI official handling the case.
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?
Many advisors are sitting on the fence and not able to make up their mind whether to register with SEBI. For those who want to provide both advisory and implementation services, body corporate with separately identifiable departments is the solution. I feel that for small advisors who were keen to run their business on these lines, the hiked fees has proven to be a deterrent.
What are the benefits of registering with SEBI as RIA?
After becoming RIA, we have been able to on board new clients. Our services are now looked as more professional and dependable as we are registered with SEBI.
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?
The regulation clearly says that no financial advice which is incidental to any product being sold is allowed. An AMFI certified mutual fund distributor can advise only on mutual fund products. A detailed financial plan consists of insurance, fixed income and other investment products. Hence, financial advisors who are not RIAs cannot give detailed plan and charge fees.
Also, other professionals like CAs, lawyers who want to establish themselves as financial advisors must get RIA license from SEBI.
What are your views on the cost of compliance with SEBI's RIA rules?
Yes, being a SEBI registered investment advisor comes with its own costs. We have to invest in technology and software so that our business processes are compliant with SEBI regulations. Also, audit requirements needs to be fulfilled. We have to employ qualified staff. All this is going to add costs.
Only 156 have registered as RIAs so far. What are the reasons for a majority of IFAs to not register with SEBI?
It is due to ambiguity about interpretation and implementation of regulations. For most IFAs the major source of income is from distribution. It is not easy for them to part with trail commission.
SEBI's RIA rules require IAs to have Rs. 25 lakh net worth. What are your views on capital adequacy requirement?
For those who are having corporate business model, Rs. 25 lakh net worth is justified. This is fine surely for big players.
What are the compliance requirements after becoming an IA?
You have to ensure that your documentation is fool proof in all aspects - right from client engagement through plan preparation and reviews. Use of technology for client relationship management and document management is a must. You have to use scientific tools for investment research and client’s risk profiling.
What would be your advice to IFAs who are considering registering with SEBI as RIA?
As mentioned, RIA certainly gives you more credibility in the minds of your clients. Globally, a lot of countries are transitioning from commission based model to a pure advisory model. India is also moving in that direction. So think big, think different and embrace the change.
Cafemutual will feature series of interviews with SEBI registered investment advisors which will help IFAs get a clear understanding of SEBI RIA regulations.
