Here is one more attempt from SEBI to curb the rise of unregistered persons acting as RIAs and RAs and providing advisory to investors – creating a “safe space” for investors.
In its Board Meeting held on 27th June, 2024, SEBI approved the proposal for facilitation of an “optional” mechanism for collection of client fees by SEBI registered research analysts (RAs) and investment advisers (RIAs).
On August 25, 2023, SEBI had issued a consultation paper on mechanism for fee collection for the same.
The proposal was that the fees will be paid by the clients of RIAs and RAs through the designated platform/s to be specified/ administered by a SEBI recognised supervisory body (read it as BASL).
I guess the proposal was not well received by the intermediaries. Hence, SEBI made the use of the mechanism optional i.e. it is not mandatory for RIAs and RAs to use that mechanism to collect fees from the clients.
As per the SEBI Chairperson, Ms. Madhabi Buch, SEBI is trying to create a “safe space” for investors. The mechanism will give recognition to registered IAs and RAs and help investors differentiate them from unregistered entities acting as IAs and RAs.
Really?
Will the problem of unregistered advisory firms be solved by this?
While the intention of SEBI is to work for RIAs and RAs, I doubt this will help.
I could see a few problems here:
#1 – If one of the clients of RIA or RA wants to pay the fee through the payment mechanism then the RIA or RA needs to use the same. Then how will the mechanism be optional?
#2 – Since the mechanism is cost neutral to the investors, who will bear the cost? Of course RIAs and RAs. I doubt if the intermediaries will prefer to use it, as this may lead to increase in cost, leave aside the increase in operations.
#3 – There is a lack of awareness among the investors as well as the advisory firms about SEBI regulations. Most of the investors do not even know if someone needs to get registered with SEBI to provide advice.
While SEBI has issued orders against unregistered advisory firms, issued warning letters and penalised them, this approach will take its own pace given the large number of unregistered advisory firms.
What should SEBI do?
If we are to believe that the intention of SEBI is really to solve the problems created by unregistered advisory firms, there are other options too.
#1 – Creating Awareness
SEBI should work on creating awareness among the investors on who SEBI registered intermediaries are and why they should avoid taking advice from unregistered persons.
How is an investor supposed to know that she is dealing with a SEBI registered adviser or analyst?
The obvious answer is to find the information on SEBI website. The details of registered RIAs and RAs are already available on SEBI’s website. Investors should be guided about the same.
SEBI should have investor awareness programs, introduce advertisements (similar to “Mutual Funds Sahi Hai” ads) and tie up with listed companies, asset management companies to create awareness about the SEBI intermediaries.
This will create a trust in the SEBI ecosystem and more persons will try to get registered with SEBI.
# 2 – Tough action against unregistered firms
Given the number of unregistered entities, SEBI will have to act fast. The action to be taken by SEBI should be so tough that the person thinks twice before having an unregistered business. The more the orders from SEBI, the more serious the compliance of SEBI regulations will be taken.
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Coming back to the payment mechanism, more details are awaited from SEBI.
Only time will tell if the “safe space” is really safe for the investors.
Hello Kruti Madam!!
We are two parteners withn one having M.Com. degree and doing some finance related activity from home. Second parterner has Master’s (Postgraduate) degree in Enggineering (Institute and Course are approved by AICTE) and he is doing teaching job in private institute but not related to security market. We both are having NISM RA Certifications. We have two queries regarding SEBI RA registration:
1. Are we eligible to register our parternship firm for RA?
2. If Yes, then can second partener continue to do teaching job after getting SEBI RA registration??
Hello. Here is my view:
1. Yes the partner with M.Com degree and NISM certification fulfills the qualification requirements and can be the representative.
2. Assuming the first partner is the representative, the second partner can continue the teaching job.