Harsh Roongta On What It Takes To Become A Registered Investment Advisor | New SEBI Rules Explained

Summary

The video discusses the recent consultation paper by SEBI on Registered Investment Advisers (RIAs) in India, aiming to ease the process of becoming an RA and increase their numbers. Harsh Jain, an RA, explains the benefits of becoming an RA, including the fee model and client satisfaction. He outlines the current regulations and proposed changes, such as the removal of net worth requirements and experience, making it easier to become an RA. Harsh also discusses the life of an RA, including regulatory compliances, fee structures, and the importance of cybersecurity and PMLA compliance. He addresses gaps in the consultation paper and encourages those interested in the profession to engage with ARYA, emphasizing it as a satisfying career.

Takeaways

• 📈 The Securities and Exchange Board of India (SEBI) has issued a consultation paper to ease the process of becoming a Registered Investment Adviser (RIA) and increase their numbers in India.
• 💼 Currently, there are approximately 995 RIAs serving a population of 1.4 billion, indicating a low number of RIAs relative to the population size.
• 🏫 To become an RIA, one must have a postgraduate degree in specific subjects like finance, accountancy, or economics, and pass certain NISM exams.
• 💼 The consultation paper proposes to remove the postgraduate requirement and reduce the net worth requirement, making it easier for individuals and corporates to become RIAs.
• 💼 The RIA profession is seen as more transparent and client-focused compared to traditional mutual fund distribution, where commissions can create conflicts of interest.
• 🔑 The consultation paper suggests that RIAs will be allowed to offer both advisory and distribution services, provided they are not offered to the same client.
• 📝 RIAs are subject to stringent compliance standards, including maintaining a client register, conducting risk assessments, and signing engagement letters outlining terms and conditions.
• 💻 The process of becoming an RIA has become more streamlined, with SEBI's application processing times typically around 30 days.
• 💼 The Association of Registered Investment Advisors (ARIA) provides support and guidance to budding RIAs, including clinics to answer questions about the application process.
• 💼 The fee structure for RIAs is regulated, with options for fixed fees or asset-based fees, and the consultation paper proposes more flexibility in fee structures.
• 🔒 RIAs must also comply with cybersecurity regulations and maintain records as per the Prevention of Money Laundering Act (PMLA).

Q & A

What is the current number of registered investment advisers (RIAs) in India?

As of the discussion, there are approximately 995 registered RIAs in India.

What is the purpose of SEBI's consultation paper on RIAs?

The consultation paper aims to ease the process of becoming an RA and increase the number of RIAs in India.

Why did the guest speaker choose to become a Registered Investment Adviser (RIA)?

The speaker became an RIA to provide transparent services to clients, charging fees directly from them and avoiding conflicts of interest that arise from earning commissions.

What are the current educational requirements to become an RA in India?

Currently, one must have a postgraduate degree in specific subjects like Finance, Accountancy, Economics, etc., to become an RA.

What changes are proposed in the consultation paper regarding the net worth requirements for individuals and corporates?

The consultation paper proposes to remove the net worth requirements, which are currently 1 lakh for individuals and 5 lakhs for corporates.

What is the significance of the removal of the net worth requirement for corporates?

The removal of the net worth requirement for corporates allows easier corporatization and reduces the barrier to entry for those wanting to offer investment advisory services.

How long does it typically take for SEBI to process an RA registration application?

Under the current regulations, it typically takes about 30 days for SEBI to process an RA registration application.

What is the role of the Association of Registered Investment Advisers (ARIA)?

ARIA is a Section 8 not-for-profit company formed to promote investor interests by elevating the standards of the investment advisory profession. It provides support and guidance to budding RAs.

What are the regulatory compliances that an RA has to adhere to in a typical year?

An RA must maintain a client register, provide suitable advice based on the client's risk profile and goals, and undergo a compliance audit at the end of the year.

How are fees typically charged by RAs and what are the regulatory limits?

Fees can be charged either as a fixed fee capped at 1 lakh 125,000 or as a percentage of assets under advice, capped at 2.5%. Switching between fee structures requires a minimum of 12 months between changes.

What are the implications of the consultation paper's proposals on the scope of services an RA can provide?

The consultation paper proposes restrictions on the scope of services, particularly concerning products not regulated by SEBI or other Indian regulators, which could limit the comprehensive financial planning RAs can offer.