SEBI

SEBI Eases Pathway for Registered Investment Advisors

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.

Understanding Registered Investment Advisors (RIAs)

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.

Key Insights into SEBI’s Consultation Paper for RIA

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.

Objective of the SEBI’s Consultation Paper for RIA

The objective of the SEBI’s consultation paper released to ease out the path for registered investment advisors is as provided below:

• To remove the high entry barriers;
• To reduce the higher cost of compliance;
• To reduce the proliferation of unregistered entities acting as RIAs;
• To cater to the needs of a large investor base;
• To conduct a regulatory framework for investment advisors;
• To simplify registration requirements,
• To remove the upper cap on fees charged by RIAs.

SEBI Extends Relaxation to Registered Investment Advisors

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:

1. Reduced Entry Barriers

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:

· Reduced Qualification Requirements

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.

· Removed Certification Requirement

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.

· Removed Experience Requirements

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.

2. Easing Certification Renewal Requirement

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.

3. Launched Flexible Fees Model

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.

4. Lowered Compliance Cost

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.

5. Ease Out Transition Rules

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.

6. Allowing Registration as IA & RA

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.

7. Permitted Part-Time RIAs

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:

• Business activity or employment related to securities;
• Handling or managing of money or funds of clients;
• Providing asset/product investment advice or recommendations to any client.

8. Use of AI Tools in Investment Advisory

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.

Benefits of Introducing SEBI’s New Proposal for RIAs

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:

• Provided opportunities to freshers and college graduates;
• Promoted recruitment of junior-level people by corporate RIA’s;
• Regulated the deposit requirement based on the number of clients;
• Reduced the financial hurdles for aspiring registered investment advisors;
• Enhanced focus on client service and growth;
• Increased the RIA registration in India;
• Limited advisory only on SEBI-regulated products (securities and instruments);
• Promoted the use of technology and innovation in investment advisory services;
• Introduced part-time registered investment advisory services.

Comparative Analysis of Old & New SEBI’s Norms for RIAs

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:

CRITERIA	PRESENT DAY NORMS	REVISED NORMS
Education Qualification	Post-graduate degree/PG diploma in specified field	Graduate degree
Relevant Work Experience	5 years’	Not needed
Certification Renewal Course (CRC)	3 years’ CRC	Refresher course
Net Worth Requirement	Rs. 50 lakhs	Rs. 1 lakh to 10 lakhs
Limit for Handling Individuals/ Customers	150	300
Part-Time RIAs	Not Applicable	Allowed to offer part-time services to a limited 75 clients

Conclusion

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.

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