Eight months after the Investment Advisers regulations came into effect, only a handful of independent financial advisors (IFAs) have come forward to register themselves as advisors.
Of the estimated 15,000-20,000 IFAs active in the country, just about 20 have been registered as investment advisors. The Sebi (Investment Advisers) Regulations, 2013, were notified on January 21 this year and came into effect on April 21.
?About 99% of IFAs are living on distributor commission and there is a fear that changing the business model will impact them adversely,? said Melvin Joseph, an IFA. IFAs believe it is not easy to charge fees from clients and it may take many years for this mindset to change.
The guidelines mandate the investment advisor shall not obtain any remuneration or compensation from any person other than from the client being advised. This may mean that IFAs who work as financial advisors will now have to let go of the distributor commissions that they get from AMCs. Commissions range between 1.25% and 2% for equity schemes, of which 0.5-0.75% can be and 0.5%
Experts believe more clarity is needed on the existing set of guidelines. ?There needs to be more clarity on the kind of documentation required and the kind of liability or penalty that an advisor will have to bear in case something goes wrong,? said Vinod Jain, an independent financial advisor. He added most IFAs are doing business as proprietors where the liability can be unlimited.
The new regulations could also increase the cost of business for the individual financial advisors as those charging a fee to their clients would have to shell out money to upgrade their infrastructure, record-keeping and on certification requirements as per Sebi’s needs. Sebi has given firms a flexibility to create separate advisory and execution-only divisions entities, which firms applying for registration under investment advisors intend to do. However, since IFAs work individually or with 2-3 members, a separate internal division may prove unfeasible.
Individuals have to pay initial fees of R5,000 while applying for registration as an investment advisor, and another R10,000 after getting in-principle approval.
Registration is expected to benefit IFAs in the long run as it will boost their credibility considering they will come under the direct ambit of Sebi. Some of the large corporate firms that have registered as investment advisors include Anand Rathi Financial Services, Barclays Securities, ICICI Securities, ICICI Venture Funds Management and Edelweiss Investment Adviser, among others.