Fee-charging advisors fear Sebi move on net worth may undermine business

Participants say Sebi's proposal can force genuine advisers to shut shops

The Securities and Exchange Board of India’s (Sebi’s) proposal for financial planners or registered investment advisors (RIAs) to show Rs 5 million in net worth has led to fear among flat fee-charging advisors, who are re-assessing viability of running their businesses. 

This follows the requirement of a minimum of 150 clients, or Rs 400 million in assets managed. In its consultation paper on January 15, the regulator said any individual investment advisor, whose number of clients exceed 150 or assets under advice stand at over Rs 400 million, would need to re-register themselves as a non-individual advisor within six months of the trigger event.

This would subject individual advisors to the proposed net-worth requirement of Rs 5 million, stipulated for non-individual advisers currently. 

For financial planners working with a lower flat fee structure, serving middle-class to lower middle-class households, the proposition could force them to shut shops.

“I started an advisory business much before Sebi created the category, to cater to more number of clients at affordable fees. However, the norm to limit clients to 150 and corporatise with Rs 5-million net worth will make business unviable,” said Melvin Joseph, founder and chief financial planner of Finvin Financial Planners. 

Joseph has a sizeable active client base since starting operations in 2010. His annual fee is Rs 14,000. Sebi laid down the RIA regulations in 2013. 

According to participants, the move could put new entrants in a lurch, as some RIAs had quit their distribution businesses to join the nascent advisory industry. 

The mandatory corporatisation will also put additional costs on participants, besides the high net worth requirement. “It would involve annual fees of Rs 100,000 to Sebi and a few lakh in compliance costs for filings with the Registrar of Companies and getting audited by a chartered accountant,” said Avinash Luthria, a Bengaluru-based Sebi-registered financial adviser. 

Other proposals that fee-only advisors feel could play a disruptive role include proposal to record client interactions.

Industry players say clients may not be comfortable with having their interactions with financial planners recorded, as conversations can be very personal in nature or deal with sensitive matters such as divorce.

“Two of my clients are going through a divorce and it is unlikely that clients in such situations would be okay to get their conversation recorded with the financial planner,” said an RIA.
 

“Sebi wants to act against the large client complaints against stock-tippers that are also registered as RIAs. However, it should not paint all RIAs with the same brush and unnecessarily create disruptive regulations for genuine players,” said a financial planner, requesting anonymity.