The final regulations for registered investment advisers (RIAs), which include allowing RIAs to offer services beyond the Securities and Exchange Board of India’s (SEBI) jurisdiction, are expected to be released within 1-2 months, SEBI whole-time member Kamlesh Varshney has said.
Speaking at the Association of Registered Investment Advisors’ virtual summit, Varshney said investment advisers can charge fees or commissions and that they will not have to create a different entity to offer these services, unlike what was proposed in a consultation paper in August.
However, such fees from services will have to be disclosed as a separate item in their invoices. They will also be required to make sure customers sign a disclaimer or waiver agreeing to not be able to file complaints with the regulator related to these non-SEBI regulated services, Varshney said.
SEBI had earlier proposed restricting advisers from offering services such as estate planning, insurance policies, and taxation, which do not fall under the market regulator’s purview. To advise on such products, the regulator had proposed non-individual advisors to establish a separate entity, which investment advisers were unhappy about.
“The regulator has shown willingness to listen to our concerns and address the issues faced by RIA’s on account of too much compliance burden. The new changes suggested by SEBI are a welcome change to transform the financial advisory industry which will ultimately benefit the investors at large and ensure a growing RIA community to service the Indian market,” said Steven Fernandes, founder of Proficient Financial Planners.
In order to encourage more investment advisers to register, SEBI had also suggested significantly relaxing eligibility criteria, removing the experience requirement, the triennial renewal of base certification, and minimum net-worth requirement. The final circular regarding the overhaul in these regulations is expected to be released within two months, Varshney said.
SEBI had also suggested doubling the number of clients needed to compulsorily convert into a partnership firm or company to 300 or if the fee collection in the financial year breaches Rs 3 crore. Another proposal was to provide flexibility between the two models for fee collection, keeping the cap for the maximum fee charged at Rs 1.25 lakh per annum per family.
Varshney outlined a classification system for all financial products, categorising them into three distinct baskets. Investment advisers can advise on all three, which include SEBI regulated products, products that are under other financial regulators, and unregulated products.
He said that SEBI’s cap of 2.5% on fees is only applicable in the first category of products that come under the regulator. Further, there was also a suggestion about increasing the fee limit as per inflation.
While the regulator reasoned with advisers’ request on such services, it did not accept the ARIA’s request that advice-based fees be charged for assets under management (AUM) under distribution with another entity or orphaned AUM for which the customer has sought advice from an RIA.