“An RIA does not only give investment advice but also works on insurance, taxation and other important aspects of a client’s financial well being.
So, they need to be separated from individuals who provide stock tips or run trading courses,” said the source.
“The setting of standards is best done by the industry itself but that needs to be done in consultation with Sebi.
RIA’s have been asking Sebi to lower the net worth requirement as well along with the number of clients.
The shift to the “research analyst” category will allow Sebi to relax norms for RIAs while imposing stringent regulations on stock tip providers, said a registered investment advisor.
The Securities and Exchange Board of India (Sebi) is expected to soon come out with a series of proposals that will provide significant regulatory relaxations to registered investment advisors (RIAs), said sources close to the development. The consultation paper, which is expected in July, is likely to eliminate the triennial certification mandate, increase the 150-client cap and do away with experience pre-requisites for hiring assistants.
A key proposal is also likely to be moving individuals who provide stock trading tips from RIAs to the “research analyst” license to create a distinction between investment advisors who provide tailor-made solutions for clients and individuals who give tips, based on past trends and other parameters.
“An RIA does not only give investment advice but also works on insurance, taxation and other important aspects of a client’s financial well being. So, they need to be separated from individuals who provide stock tips or run trading courses,” said the source.
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According to people in the know, the market regulator has been holding discussions will all the stakeholders to address the challenges faced by RIAs and explore possible regulatory relaxations.
Last October, addressing registered advisors’ concerns about the compliance burden at a conference organised by Association of Registered Investment Advisors (ARIA), Chairperson Madhabi Puri Buch acknowledged the compliance burden on RIAs and emphasised the regulator’s willingness to co-create regulations.
“The setting of standards is best done by the industry itself but that needs to be done in consultation with Sebi. For one, if there is an area where the marginal utility of compliance is low but the cost is high, the industry will ask if this is burningly important. Eighty percent of the time, it is. But there could be occasions where it is possible to be more flexible,” she said.
According to current norms, RIAs must renew their National Institute of Securities Markets (NISM) certification every three years by clearing an exam – something, many view as a business continuity risk. Sebi’s proposal is expected to do away with this requirement.
Another requirement that limits hiring in the sector is the need for ‘persons associated with investment advice (PAIA) to have at least two years of experience. This is also expected will also be removed. Most believe that lowering the postgraduate requirement for PAIAs to a graduate degree will help hire more people. “This rule poses a huge problem in recruiting talent, particularly for small RIA practices with limited resources,” said Suresh Sadagopan, founder and MD of Ladder7 Wealth Planners.
One of the biggest roadblocks for business expansion is the requirement to convert into a partnership firm or company upon reaching 150 clients. This transition is a drain on an RIA’s pocket, particularly for a new RIA who usually has a high number of low-paying clients. Sources said that this limit could be doubled to 300 clients or even higher.
Apart from transitional charges, the net worth requirement for partnership firms and companies of Rs 50 lakhs is very high. RIA’s have been asking Sebi to lower the net worth requirement as well along with the number of clients. The shift to the “research analyst” category will allow Sebi to relax norms for RIAs while imposing stringent regulations on stock tip providers, said a registered investment advisor.
