• RIAs must display complaints against them on their own websites and can only accept payments through banking channels
• The new rules can also put RIAs at a disadvantage against mutual fund distributors in the mutual fund space
Mumbai: The Securities and Exchange Board of India (SEBI) issued a circular today banning SEBI Registered Investment Advisors (RIAs) from giving free trials of their services to customers or accepting part payments for their services. It also laid down that RIAs can only give advice after conducting risk profiling of clients. RIAs must display complaints against them on their own websites and can only accept payments through banking channels. Registered Investment Advisors are a type of intermediary created by SEBI in 2013. They are authorized to give investment advice on all types of financial products in return for a fee.
“The SEBI regulations are aimed at curbing the activities of stock tip providers who were offering free trials and introductory payment plans," said Suresh Sadgopan, founder, Ladder 7 Financial Advisories. “Most genuine investment advisors did not offer such facilities," he added. The SEBI regulations will also apply to the fast-growing breed of online RIAs such as Mobikwik, Kuvera and Paytm Money.
Two provisions in the SEBI regulations may create problems for online RIAs. First, the circular lays down that investment advice can only be given after the customer consents to the risk profiling in a physical document or through his registered email address. Most online RIAs simply provide online forms to be filled by customers and do not collect customer consent in this manner. Second, SEBI regulations ban RIAs from accepting payments through payment gateways on the grounds that audit trail in such cases is not visible. Only payments into the RIA’s bank account are allowed. This can hit customers who want to pay online advisors through credit and debit cards. The CEO of a large online RIA however dismissed these concerns, stating that the circular simply reinforces existing norms and there are no new restrictions on online RIAs.
The new rules can also put RIAs at a disadvantage against mutual fund distributors in the mutual fund space. Mutual Fund distributors are authorized to offer advice that is incidental to their business of distribution. There were 107,302 mutual fund distributors in India as of 31st March 2018 compared to just 1,136 advisors. The new circular will not apply to them.