Dear Reader,
In what appears to be a positive development, the Securities and Exchange Board of India (SEBI) has proposed easing restrictions and regulations governing India's registered investment advisers (RIAs). This reform was much needed, as the country currently has only 961 registered advisers serving the entire market—far too few for the growing number of investors joining every month.
SEBI has proposed a broad relaxation of requirements to increase the number of RIAs in the market. The regulator is making it easier for new RIAs to enter the field by reducing the educational qualifications, work experience, and net worth criteria.
Regarding educational qualifications, an applicant only needs a graduate degree, compared to the previous requirement of a post-graduate degree or a graduate degree with five years of work experience. After passing the necessary certification, fresh graduates can now become RIAs, as they eliminated the work experience criteria.
Currently, RIAs are required to hold a financial planning certification either from the National Institute of Securities Markets (NISM) or any other accredited and relevant certification, such as 'Certified Financial Planner'.
Another significant concession involves the renewal of certification. SEBI has proposed eliminating the requirement for RIAs to retake the same exam every three years to maintain their licence. Instead, RIAs must complete a refresher course to stay updated on major changes in the investment world.
The authorities have also reduced the entry barriers for becoming an RIA. Currently, an individual RIA must have a minimum net worth of Rs 5 lakh while a corporate RIA must have a minimum net worth of Rs 50 lakh.
SEBI has now tied the required deposit to the size of the RIA's business, ranging from Rs 1 lakh to Rs 10 lakh, depending on the number of clients. This deposit will be used to settle any future disputes. Additionally, SEBI has introduced more flexibility in the fees RIAs can charge their clients.
SEBI has also proposed several other changes to simplify the registration process for RIAs. These reforms could increase the number of RIAs registered.
In its eagerness to boost the number of RIAs, has SEBI gone too far in lowering the guard? The objective of giving investors a larger pool of RIAs to choose from is to make it easier to access expert advice on their financial journey. India is seeing a growth in the financialisation of savings, but data show that people are jumping into short term speculative activity that is causing losses to many. An advisor steps in to curb this herd mentality and puts investors on a long term path of achieving their financial goals.
The move to relax entry criteria, ostensibly to counter the rise of unregulated "finfluencers" risks opening the floodgates to a wave of inexperienced RIAs. The reduction in standards may inadvertently encourage a new breed of social media influencers to use their credentials as a marketing tool, potentially misleading investors. In the rush to curb one problem, SEBI may be inadvertently sowing the seeds of another, raising concerns about the quality and reliability of financial advice in the market. It should keep a careful watch over how its move to relax the regime governing RIAs affects the quality of advice being made available to investors.
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