SEBI has increased the proposed cap on fixed fee for registered investment advisers (RIAs) from Rs.75,000 to Rs.1.25 lakh per annum per family.
The market regulator has also allowed RIAs to follow percentage on AUA model where they can charge up to 2.5% on AUA irrespective of asset class from a family. However, RIAs may have to demonstrate AUM with supporting documents like demat statements, unit statements and so on.
In addition, the rate of fees is applicable at family level. This means, RIAs can charge either Rs.1.25 lakh per family or 2.5% of AUA per family. Family includes individual, spouse, dependent children and dependent parents.
RIAs can follow any one model on an annual basis. Also, RIAs can charge fee only after 12 months of advisory services. In addition, RIAs can charge advance fee for up to 2 quarters with an option of refund if investment advisory service is discontinued. RIAs can retain fee of up to one quarter from clients in case of termination of contract.
Here are some other key changes to RIA regulations.
- Existing clients cannot avail distribution services offered by the corporate RIAs and vice versa
- New clients will have to decide if they want advisory services or execution services from their RIA
- Client will be segregated at PAN level
- Individual RIAs are not allowed to offer execution services to their clients
- Have to recommend direct plans only to fee based clients wherever available. This means, even if a product class doesn’t offer direct plan, RIAs will have to ensure that they do not make any money out of it
- Non-individual RIAs i.e. advisory firm/ company can offer both – advisory and distribution depending on their clients
- RIAs will have to enter into a formal agreement with clients before offering any services
- Net worth requirement for individual RIAs and non-individual RIAs is Rs.5 lakh and Rs.50 lakh, respectively
- Individual RIAs or principal officer of advisory firm/company should have minimum qualification of post-graduation in relevant subject and 5 years of experience in relevant field. Existing RIAs will also have to meet this eligibility criteria to continue their advisory business
- Such criteria is relaxed for RIA employees to having 2 years of relevant experience, post graduate and NISM qualification. Existing RIAs who are 50 years of age and above are exempted from complying with revised rules
- Individual RIAs having more than 150 clients have to compulsorily re-register as corporate. This means, they will have to increase their net worth from Rs.5 lakh to Rs.50 lakh
- Existing RIAs will have to apply for corporate RIA license latest by April 01, 2021. In addition, RIAs having over 150 clients will have to report this to SEBI latest by October 15, 2020
- RIAs will have to maintain records of interactions with clients in physical or electronic form. Such records have to be maintained for at least 5 years
- RIAs will have to get their business and accounts audited half yearly
- RIA website should contain complete name of investment advisor, type of registration (individual or non-individual), registration number, complete address with contact details and corresponding SEBI regional office address
- Mutual fund distributors are no longer allowed to use nomenclature like ‘independent financial advisers’ (IFAs) and ‘wealth managers’ without registering with SEBI as RIA
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