Sebi-RIAs Welcome Relaxation Proposal, Say It Will Increase RIA Number, Help Them Focus On Core Job

The Securities and Exchange Board of India (Sebi) has proposed lowering eligibility criteria, scrapping net-worth requirements, and easing fee regulations for investment advisers (IAs) and research analysts (RAs).  

The requirement for post-graduation may also be removed, and the National Institute of Securities Markets (NISM) re-certification requirements may also be relaxed. 

With this, Sebi aims to encourage more professionals to offer credible investment advice, as it feels the number of available IAs do not match the size of the investor base. This had led to a rise in unregistered entities posing as IAs and RAs, Sebi said on August 6, 2024.  

Outlook Money spoke to a few Sebi-registered investment advisors (Sebi-RIAs) to see how the move will impact the advisory landscape. 

Will Sebi Proposal Increase The Number Of RIAs?

Lovaii Navlakhi, Sebi-RIA said the Sebi consultation paper is a step in the right direction and long overdue. “Reducing the entry barrier could provide the thrust needed to increase the number of RIAs who act as fiduciaries to the client,” he says. 

According to Gaurav Goel, Sebi-RIA, the recent proposal will offer several relaxations to the investment advisor community, as will relax the educational and qualification requirements of the principal officer and assistant RIAs. 

“It dilutes the stringent requirement of re-certification every three years, increases mandatory corporatisation requirement of client base from 150 to 300, and offers more fee payments options, while substantially reducing the net-worth requirements,” Goel says. 

Goel said the idea of RIAs gained prominence in 2013, but stringent regulations from Sebi hindered their growth, and their population started dwindling. Unregulated influencers rose in number and continued to give unsolicited advice without repercussions, he adds. 

“Sebi’s move will curb the rampaging growth of unregulated entities and incentivise them to take up a RIA licence instead,” he says. 

Will Easing Eligibility Criteria Dilute Quality Of RIAs? 

Sebi’s proposal to lower the educational requirements for Sebi-RIAs and RAs from post-graduate to graduation has led to apprehension that it could dilute the quality of RIAs. 

Vivek Rege, Sebi-RIA says, “Previously, there were three type of requirements for financial advisors: qualification, experience, and certification. On the qualification side, the post-graduation requirement may be scrapped. I feel there is no evidence of post-graduation improving the quality of advice given. In my opinion, qualification alone does not necessarily improve the quality of advice. While it is beneficial, I believe it should be seen as advantageous rather than a mandatory requirement.” 

“From now on, individuals seeking to enter the industry will need to pass the (NISM-Series-XA and XB for IAs) examinations, which are rigorous. Passing them demonstrates the advisor’s competence. Eliminating the experience requirement will also allow individuals from diverse backgrounds with strong knowledge of financial markets to enter this sector,” he adds. 

Sebi has also proposed for a new category of RIAs called ‘part-time RAs’, thus allowing people from diverse backgrounds, for instance, lawyers, media professionals, doctors, etc. to enter the profession. 

Goel says there could be some dilution of the quality, but with stringent regulation requirements, this would certainly check the rampant growth of unwanted, unauthorised and unregulated entities, which is a much bigger evil. 

Dual Registration As RIA And RA 

Sebi has proposed that individuals or partnership firms may be allowed to seek registration as both IA and RA, provided they comply with the requirements under each of these regulations separately.  

Rege says: “Previously, one had to obtain an RIA and RA registration as separate entities if at all they were interested, which went against the ease of doing business. It created complications where one needed to carry out similar kind of work, except that the format was different. When working as an investment analyst, advice is given on a one-to-one basis, while as an RA, advice is given as one-to-many, but the advice remains the same.” 

Goel says: “A dual registration of RIA and RA would be of limited help to the RIA community. However, it will help RAs remove ambiguities regarding advice and views they can express.” 

Easing NISM Renewal Requirement 

Sebi has also proposed that RIAs do not have to renew their NISM certification every three years, but only obtain additional certification for the changes in the last three years. 

On this, Navlakhi says: “Current updated knowledge still holds to be an important ingredient in the requirements of RIAs. The new provisions of periodically testing newer concepts or changes since the last examination will adequately test the knowledge of the RIA, and are a positive change in the consultation paper.” 

Goel feels this could come out as a “huge relief”. 

“Previously, the NISM re-certification was done every three years. The syllabus is quite comprehensive, and the scoring pattern is complex. It requires a large number of man-hours, and despite the repetition of core concepts, many RAs and RIAs have to take more than one attempt to clear the exam. Examinations are also expensive. The relaxation will give room to RIAs to focus on their core job,” he adds.