RIAs can charge fees, commissions for non-Sebi products: Sebi’s Kamlesh Varshney

Moreover, he said such fees should not be subject to Sebi caps, adding that there would not be any requirement to offer such products through a different entity, as Sebi had contemplated earlier. 

However, Varshney clarified that RIAs should disclose the fee for non-Sebi products as a separate line item in their invoices. They must also get customers to sign a disclaimer or waiver that they will not be able to file complaints with Sebi for such products. 

Encouraging people to become RIAs 

He said the number of around 500 active RIAs in the country needs to rise significantly but declined to specify by how many.  

To achieve this purpose, Sebi has proposed to lower eligibility criteria, scrap networth requirements, and ease fee regulation to attract more professionals to become RIAs and research analysts in an August consultation paper.

However, products, such as insurance policies, the national pension system, taxation and wills, which are not regulated by Sebi, have been a sticking point. 

According to Varshney, all products can be classified into three baskets: those regulated by Sebi into basket 1, those under other regulators into basket 2, and those unregulated into basket 3. 

RIAs can offer products in all three baskets, Varshney clarified in an answer to a question by Vivek Rege, former chairman of the ARIA.

“Sebi has superbly navigated two conflicting objectives. First, it needed to ensure investors could access comprehensive financial planning and investment advice from a regulated person, even though such services would include products and services that do not come under its jurisdictions. The second, it needed to ensure the investor understood and had a clear expectation that they could access Sebi’s grievance redressal machinery only for Sebi-related products and services,” said Harsh Roongta, a Sebi RIA and member of the ARIA’s advocacy committee.

“They have found an excellent via media of basketing the products and services. This will ensure that investors get comprehensive solutions from a regulated entity that follows a disciplined approach across all its products and services, even if the investor may not have access to Sebi’s grievance machinery for the entire suite of products and services. It’s way better for the investor to deal with a regulated entity than a completely unregulated entity,” he added. 

However, Varshney did not accept the ARIA’s request that advice-based fees be charged for assets under management (AUM) under distribution with another entity or orphaned AUM for which the customer has sought advice from an RIA.