It is interesting to see that a lot of new wannabe advisors are those who have a personal passion towards investing.
They have made money for themselves as well as for their family / friends. But then a time comes when their own inner voice or someone else’s tells them, “why don’t you make a career out of it?”
Yes, that seems like the right thing to do.
Time to convert the passion into a full time activity. Offer services to people (beyond family / friends), charge them a fee.
So, you find out that getting the SEBI IA registration is required and you go for it.
The first question that pops up is “Should I get registered as an individual or non-individual?” (Individuals include proprietorships. Non-individuals include partnership firms, LLPs, companies, etc.)
You start to feel the wind taken away.
Well, not to worry.
Here are the 5 key points or the areas in the regulations that you should consider before making the decision.
#1 – What is the Net worth requirement?
Post the latest update to the RIA regulations in September 2020, you need to have a net worth of Rs. 5 lakhs as an individual license seeker. For non – individuals, the net worth requirement now stands at Rs. 50 lacs.
#2 – What is the fee to be paid to SEBI?
SEBI had slashed the application and registration fees for RIAs in the amendment regulations. However, SEBI has introduced BASL (Self Regulatory Organisation) where the RIAs have to pay the membership fees.
Here are the details:
The application fee is to be paid only once whereas the registration fee is paid when SEBI approves the application as well as a nominal renewal fee to be paid every 5 years.
Here are the fee details for BASL membership fees:
The BASL fee is paid at the time of approval of SEBI application and every 3 years.
#3 – How many clients can you service?
As an individual, you cannot service not more than 150 clients at any given point in time. If you hit the number, you either have to stop taking new clients or upgrade your license to a non-individual one. For all practical purposes, it is an entirely new registration where you have to make an application to SEBI for a non-individual RIA license.
#4 – Can I provide distribution services?
As an individual RIA, you cannot provide distribution services. Distribution services include distribution of mutual funds, stocks, insurance products or any such investment products where you will get commission / brokerage or any other compensation.
Also, if your spouse, children or parents are into distribution service then you have to follow client-level segregation compliance.
As a non-individual RIA, you can provide distribution services under the same entity, but there too you need to follow client-level segregation compliance.
For better understanding, client level segregation means –
For individuals – If any of your family members (spouse, parents and children) is providing distribution services to a client, you cannot provide advisory services to that client and vice versa.
For non-individuals – If a client is an advisory client, he / she cannot avail distribution services from the same entity or from the entity in the same group.
However, the RIAs can provide implementation services if there is no receipt of fee / commission or any compensation for the same.
#5 – Do I need to have a team?
As a non-individual, you need to appoint a compliance officer for monitoring of compliance. However, there is no such requirement for individuals.
The team members who work as RMs or client facing persons also need to fulfill the qualification and certification requirements. However, such requirements are the same for both individuals and non-individuals.
Other compliance requirements like qualification and certification requirements, client onboarding process, signing of agreement, charging of fees, maintenance of records, conducting audit, etc. is same for both individual and non-individual RIAs.
These 5 points should probably help you see clearly as to which category of RIA license is likely to work for you.
If you are not sure, maybe you can start with the individual license and later get a non-individual one.
Having said that, if you have more questions, you can write to me at kruti@cskruti.com and/or take up my phone consultation services.
Can a non individual Ria provide distribution services in his wife’s name and ARN?
Hi Aruna, I need to know a few more details. I request you to opt for phone consultation to discuss further. Here are the details – http://www.cskruti.com/consultation-services/
Hi. Very helpful post! I have a query- I have completed CFA (no charter) and CA, have been an auditor for 8 years and have ~1 year equity research experience. My friend is a graduate but with 20 years equity related experience. Based on the new sebi regulations can we together apply for a non-individual RIA registration?
Thanks!
Hi Jiya, for non-individual RIA application, atleast one director / partner needs to fulfill all the qualification and certification requirements i.e PG + minimum 5 years of experince + NISM Series XA and XB certification.
Being a corporate RIA along with a separate division of MFD also, can we provide model portfolio of stocks to the investor(with AUA based fees model) who has running regular plan mutual fund investments under MFD? In short can we provide two different products to single investors from both the division, RIA and MFD?
Hi. You cannot provide differnt products or services to the same investor from both the RIA and the MFD division.
Can a registered analyst apply for registered investment advisor also? Or are they forced to surrender earlier RA license, if wish to apply for RIA license ?
Non-individual RAs can apply for RIA license. For individuals, Mumbai office has given both RA and IA license in the past. However Ahmedabad and Delhi offices have denied. So, I suggest you confirm with SEBI’s regional / local office near you.
Hi Kruti
I was collaborating with Individual Registered Investment Advisors who was already employed with listed entity and such clarification was already provided to SEBI while registering with SEBI.
Now when we form entity and register at Corporate RIA with such employed person as Principle Officer, will SEBI allow regsitering as Corporate RIA and he continuing his employment.
Hi Jayesh. I doubt if SEBI will allow the PO to continue his employment. Best is to confirm with officer at SEBI’s head office or with BASL.
How can I contact you..
Kindly share an email to kruti@cskruti.com and we can take it forward.
Hello kruti may i know your fees Charges for sebi registration as Pvt Ltd in research analyst
Hi Anand. I have emailed you.
We are currently mutual fund distributor with the status of private limited company. Now wanted to start advisory services too. What is more advisable, start a fresh company or should we take RIA license in the same company where we have distribution services already. (We are very well aware and capable to do client/family segregation.)
Here are few points to be considered:
1. Can you manage Rs. 50 lacs net worth in new company?
2. The PO has to be a Director. Do you want the PO to be the director of the company which has both the businesses?
3. Please check with an expert on the income-tax aspect too. Since I am not an income-tax expert, I will not be able to guide you.
4. Do you have the capacity and the logistics to manage two companies from regulatory filing and compliance point of view?
5. If you decide to have both businesses in the same company, you should have clear segregation of activities from employees, office (cabin) space, bank accounts, etc.
Hope this helps.
Thanks for your inputs.
We have one more doubt to clear in case of single company running both services (Distribution and Advisory). Assuming there is a client/family, already have an investment with regular plan in distribution services (of our company), willing to invest further only in direct plans through advisory services (of our company). It is very clear that the client/family will not invest further in regular plan but still have old investments in regular plant, where trail commission is received by us. So will there by any issue in such cases, where a company receiving advisory services fees from a same client on new investments and trail commission on only old investment.
As per the SEBI circular issued in Sept 2020 for IAs, the clients will have discretion to continue holding assets under distribution arrangement. The client cannot be forced to liquidate/switch such existing holdings to direct plan. However, slowing with passage of time, and taking into consideration exit loads / gains, etc., you will have to switch the investments to direct plans.
Also, any portion of AUA held by the client under any pre-existing distribution arrangement has to be deducted from AUA for the purpose of charging fee. Hope this helps.
Hello
I am working in a broking industry with over 12 years experience. I intend to do RIA reg. But not sure if I am employed ( Broking can be considered as distribution service & Salary as compensation ), and eligible to get myself registered as RIA.
Please advise.
Thanks
Vijay D
Hi Vijay, Experience in broking activities is relating to advice in financial products or securities. Are you working as an AP or working with a broking firm?
i am working with a broking form as an employee. I am sure AP’s cant register for RIA but not very sure if employees of broking firms can be RI. I am in to sales department of a broking firm.
If you want to register as an individual investment adviser, you have to fulfill the qualification and certification requirements. You cannot continue as an employee of the broking firm and cannot have AP license in your name.
Hi Kruti, Very nice information. Can you explain more about Networth requirements for Corporate RIA? At present 25lacs for Pvt Company, is it only Paid-up Capital plus Reserve and surplus only? Or any other way to calculate this basis asset/investments/future growth potential etc? This is because I see some RIA (Pvt Ltd) Company whose Paid up capital as per MCA website is only 1lac, 5lacs etc and they are registered as SEBI RIA (PVT LTD). How is it possible? These are some big names and known for Direct Plan providers. You can also check. Asking this because I am planning to register as Pvt RIA, though I have assets/investments, good business plan, but can not block 25lacs (50lacs as expected) for Capital. Your input will help.
Hi Suresh, the present requirement is Rs. 50 lacs. Networth means the aggregate value of paid up share capital plus free reserves (excluding reserves created out of revaluation) reduced by the aggregate value of accumulated losses, deferred expenditure not written off, including miscellaneous expenses not written off.
Other companies may have free reserves which is not shown on MCA website.
Is executing trades on behalf of clients included in “implementation services ” & hence allowed ?
As per SEBI regulations, you cannot get POA or authorisation from clients for implementation of investment advice. Hence, in my view, placing trades in the clients accounts will not be allowed.
If some one wants to sell software or buy sell indicator to clients than Sebi RIA is required or not?
If the software has to be used as is, then you will require SEBI registration.
What is the path to become an RIA?
I am a software professional and am interested in becoming an RIA myself.
Please advise.
Hi Tilak, request you to read this – https://cskruti.com/how-to-register-as-an-investment-adviser-with-sebi/