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The capital market regulator, i.e., the Securities Exchange Board of India (SEBI), made significant efforts to contain activities of unregulated fin-influencers like Registered Investment Advisors (RIAs) and Research Analysts (RAs).
The relaxation of the registration requirements portrays efficient conduct of the regulatory framework for investment advisors and research analysts, the market regulator has paved the way for the deemed enlistment of existing registered investment advisors.
The registered investment advisors are those individual financial advisors or companies registered under the Securities and Exchange Commission (SEC) or the State Regulators. These financial firms provide diverse financial advice for attaining the client’s best interests. In addition, RIAs have a fiduciary obligation towards their clients.
These registered investment advisors are mandatorily required to comply with the code of conduct, disclosure norms, and minimum qualification/experience requirements underlined by SEBI from time to time.
Secure your registration as an Investment Advisor under SEBI to meet mandatory compliance, uphold fiduciary duties, and deliver financial advice to ensure adherence to SEBI’s rigorous code of conduct and disclosure norms.
The Union Budget passed for the financial year 2023-24 announced measures to simplify, ease, and reduce the cost of compliance for all existing public and regulated entities. Accordingly, the Securities Exchange Board of India appointed an Intermediaries Advisory Committee (IAC) comprising public consultants and 16 working groups to review the compliance requirements for RIAs and Research Analysts (RA).
Further, the recommendation of the IAC incorporated under the SEBI introduced a new consultation paper with the proposal to establish a conductive regulatory framework for the RIAs and the RAs as of August 6th 2024.
The objective of the SEBI’s consultation paper released to ease out the path for registered investment advisors is as provided below:
The Securities Exchange Board of India eased the path for registered investment advisors by simplifying the restrictions and regulations imposed on the RIAs. The SEBI’s proposal provides the following advice as outlined below:
The proposal is to lift every entry barrier for newly registered investment advisors. The relaxation in the eligibility criteria, which reduces the entry barriers, allowing RIA to join the professionals easily are as provided below:
The SEBI reduced the qualification requirements from postgraduate to graduate degree to enable easy entry of young minds and professionals intending to provide investment advice or research services.
The SEBI further removed the NISM-Series-XA & XB exam certification requirement to ease the recruitment of employees as investment advisors. Thereafter, employees are only required to obtain the initial base certifications at the time of registration as investment advisors.
The SEBI removed the 5-year work experience requirement to register the directors or key personnel to provide investment advisory services. After that, they are only required to obtain a graduation certificate from any stream or subject.
Further, the SEBI’s proposal eased out the requirement to mandatorily pass the certification renewal examination within 3 years. Now, registered investment advisors are only required to pass a refresher course to comply with relevant changes or updates happening in the investment world.
The SEBI launched a consultation paper in 2024 and proposed a flexibility grant in the fees charged during the client’s engagement. Now, the RIAs must wait 12 months to switch between the fixed fee model and the AUM model. The RIAs are free to charge fees as a percentage of 2.5% of the client’s overall AUA (asset under advice) or at a fixed rate of a maximum of Rs. 1.25 lakhs per annum.
The SEBI proposed to lower or maintain the compliance cost (net worth) requirement to start practising as a registered investment advisor professional. Further, the compulsory net worth requirement of Rs. 50 lakhs for corporate RIA was to be reduced between Rs. 1 lakh and 10 lakhs. The reduced value is further required to be deposited to a registered stock exchange to avoid any legal disputes.
Further, the SEBI’s proposal intended to streamline the rules for individual RIAs transitioning to corporate RIAs where the client exceeds 150. Now, the consultation paper tries to ease the transition rules by enabling the RIA to expand the limit of their customer base to 300 for the smooth handling of operations.
SEBI’s proposal also reviewed the demand for allowing the registration of both investment advisors (IA) and research analysts (RA) to provide overlapping services to clients. Individual and partnership firms are allowed to register under both, along with an undertaking stating that they will maintain an arms-length relationship between their activities as IA and RA.
The individuals or partnership firms engaged in other activities not related to securities are now permitted to seek registration as part-time investment advisors. The part-time RIAs are eligible to handle advisory services limited to only 75 clients. The entities applying for part-time RIAs must be engaged in business activities as provided below:
The SEBI’s proposal for registered investment advisors eased out the investment advisory assistance and services provided by using artificial intelligence-based tools like OpenAI, ChatGPT, Google’s Gemini, etc. The RIAs using AI tools for servicing clients must disclose the extent of their usage completely.
The SEBI-introduced new proposal for RIAs is beneficial in addressing various challenges leading to efficient improvement of the investment advisory services. Hence, some of the key benefits of introducing SEBI’s new proposal for registered investment advisors are provided below:
The following table comprises a comparative analysis of the old and the new SEBI’s norms introduced for the efficient management and compliance with the services provided by the RIAs:
A closer reading of the SEBI-introduced consultation paper ensures curbing the growth and regulatory ambit of registered investment advisors. The SEBI-issued consultation paper calls for a comprehensive review of existing regulations to simplify and ease the cost of compliance. Additionally, the consultation paper proposed a series of changes to address the growing influence of trading calls and risk profiling in India.
Transform your investment advisory practice with registration under SEBI. Visit our website www.enterslice.com for expert guidance and streamlined registration to enhance your services offering and regulatory compliance.
Yes, you can trust SEBI-registered investment advisors who provide advisory services to resolve conflicts among clients.
The requirements for registering SEBI-registered investment advisors in India are proof of identity, address proof, graduation qualification certificate, CIBIL score, etc.
The SEBI-registered investment advisors ensure that they provide expert advice to simplify financial planning, investment management, tax planning, and investment-related decisions.
Some of the benefits of SEBI's new consultation paper on RIAs include reducing financial hurdles, improving opportunities for freshers, recruiting junior-level people, regulating the deposit requirement, enhancing client service, and providing limited advisory services.
Yes, the updated SEBI consultation paper on RIAs introduced in August 2024 allows a CA or any other professional (not engaged in activities related to securities) to become a part-time SEBI registered investment advisor.
The SEBI introduced an updated consultation paper on August 6th, 2024, to ease the path for registered investment advisors. The paper further reduced entry barriers, eased certification renewal requirements, launched a flexible fee model, lowered compliance costs, eased transition rules, promoted registration as IA & RA, and permitted part-time RIAs.
Currently, around 1300 SEBI-registered investment advisors exist in India.
No, you cannot give investment advice without possessing a valid and legal license under the SEBI financial advisory and planning regulations.
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