Important Pointers of becoming an RIA!!

A lot has been discussed about the pros and cons of registering with SEBI as an RIA. Many distributors are hesitant due to various factors like:

  • Most distributors depend on commissions received from AMCs and believe that fee-based model won’t be able to cover their costs.
  • The fee for body corporate and company is too high. SEBI raised the registration fee from Rs.1 lakh to Rs.5 lakh in 2015.
  • The information required to register as a RIA is very detailed and comprehensive.
  • Compliance cost is high and the regulations are somewhat ambiguous.
  • Sharing his experience of being a SEBI registered RIA, Suresh Sadagopan, Founder of Ladder7 Advisories provided insights on what it takes run a RIA practice and the precautions IFAs should take at a recent event held by Society of Financial Planners (SOFP), a Mumbai based financial planners association. Jayant Vidwans, Director at Chaitanya Financial Consultants and Paresh Sukhtankar of Reliable Investments were a part of the panel along with Suresh.

    Licence to advisory practice

    Suresh said that with the regulator’s focus on bring down TER, commissions may eventually go down requiring distributors to rethink their business model. “Registering with SEBI gives the advisor a license to practice advisory business. Currently, you are dependent on fund houses to earn your commission but once you start charging fee you are on your own,” says Suresh.

    Inform investors about direct plan

    Some IFAs perceive online platforms and direct plans to be a threat to their business. To tackle this, Suresh advises IFAs to explain direct plans to clients and how you add value before they discover direct plans from other sources. “Digital disruption has affected many businesses and is now here to change the face of advisory profession. Lately, many online platforms have started robo-advisory practice to woo tech savvy investors. Also, there are some platforms which completely focus on direct plans. As a result, consumers are now moving online,” observes Suresh.

    “The best way to retain clients is by informing them about direct plans. If your investor gets to know through someone else, the damage is already done,” he adds.

    Fee and service

    Many distributors are refraining from becoming an RIA because they feel that charging fee is difficult. Reacting to this, Suresh said, “Initially, charging fee will always be difficult. Even I was a distributor and had to undergo a process of transformation. Be client centric and expand your services. You have to understand the client completely. Don’t be a salesperson. For example, if you are currently limited to only investment planning, start tax planning and other services. As clients see that you are going out of your way to help them they will themselves ask your fee.”


    Suresh cautioned advisors to avoid using terms like financial planning, financial advisor, advisory, comprehensive financial planning on their websites or other stationary if they are not SEBI RIA. “These terms are technically permitted only for SEBI RIAs as they have license from the regulator. Using terms like comprehensive financial planning will mean that you are advising on all investments. While SEBI has not penalized any distributor for using such terminology we should follow the regulation in spirit,” advises Suresh.

    Commissions from distribution arm

    Being a RIA does not mean that they are not allowed to have a distribution model. SEBI, in its RIA regulations, has provided a provision to banks, NBFCs and body corporates to offer execution services provided they maintain an arm’s length relationship between the activities as investment adviser and distribution or execution services. Thus, many distributors have registered with SEBI by forming a subsidiary for execution services. Many SEBI RIAs have a distribution arm for execution.

    Record keeping

    The regulations require RIAs to keep a record of every conversation. While this may not be easy to execute, Suresh says there are various ways to make this simpler. “In the detailed letter you provide to SEBI, you can mention that the mode of communication will be email. Any other medium to communicate will not be considered official. This declaration will make your practice much simpler.”

    He says that being an RIA requires a lot of paperwork and you need to maintain invoices and other bills.

    He advises IFAs to follow RIA model as this will not only help them grow their business but also help them become more customer oriented.