What started as a challenge extended by the market regulator, SEBI, to an industry association ended in a technology innovation that brought down costs for the association’s members significantly.
The Association of Registered Investment Advisers (ARIA) spearheaded a group buying of a risk-profiling technology that brought down costs for members down to Rs 60 per profile.
Harsh Roongta, Director of ARIA and Founder of Fee-Only Investment Advisor, said that the association members had gone to invite the Securities and Exchange Board of India (SEBI) Madhabi Puri Buch for their flagship event when she said that she would only attend it if it was to inaugurate a risk-profiling tool.
“That was in September 2022 and the event was to be held in February 2023, we didn’t have much time,” said Roongta, in a conversation with Moneycontrol.
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They finally inaugurated it — called RiskQ — on October 4 and the effort was appreciated by the Sebi chairperson, who inaugurated the tool at the conference organised by ARIA.
Buch said, “It was not easy to do, the Indianisation (of the technology)… and including our regulations… I know that it must have required a lot of time, energy and high-decibel discussions but it’s been done, and now the entire community can benefit from it. The group buying was not just about getting a good price for the product but also about getting a readymade plug-and-play product, and being able to do risk profiling for Rs 50-60 a pop, what can be better than that.”
The risk-profiling tech, made by Syntoniq, was customised for Indian users with the inputs given by the association.
“The tool required a major overhaul,” said Roongta, adding, “it was not as simple as changing the language”.
Under Indian regulations, the risk-profiling exercise has to capture more data points than are required in other countries, and the clients must be made aware of the risk profile assigned to them and they have to agree with the profile, he said.
The team also had to ensure that the cost of building the tool was kept down. Roongta said that the regulator was very particular that the price point be such that it is affordable to a large base so that the cost does not become the excuse to opt out of it.
Vishal Dhawan, co-founder of Plan Ahead Wealth Advisors, said besides these customisations, the tool had to be tested in Indian conditions.
Speaking at the inauguration, Dhawan said that the exercise started by hiring a leading law firm to look at all the enforcement orders passed by the regulator specifically on risk profiling.
He said that there were several key findings from this exercise: that risk-profiling was done before collecting the fee, which isn’t allowed under the regulations; the information that was being collected was not as per the regulations, therefore a 360-degree view was not being taken before giving advice; the investors were not being informed that their risk-profiling was completed; and there was a lack of interaction with clients when risk-profiling was done.
The tool was designed to address these lacunae and to meet the regulatory ask, particularly that of Regulation 16 of the Investment Adviser Regulations, which ensures that the full persona of the investor is captured through risk profiling.
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