In a Consultation Paper on Review of Regulatory Framework for Investment Advisers and Research Analysts dated Aug 6th 2024, SEBI has proposed the concept of a part-time investment advisor and research analyst. The comments on this paper closed on Aug 26th 2024. It is quite likely that it shall come to pass.
A recent news article on the subject opened with a reference to me, resulting in readers asking us if I wanted to apply for part-time advisor registration. The short answer is no. I have no such plans.
Among the proposed stipulations are a no-objection certificate from their employer and a 75-client limit. The paper clarified elsewhere that the number of clients “shall
mean number of client agreements in force at any point of time”.
I am sceptical about this move. Will this be beneficial to clients? Advisors like to compare themselves to doctors once too often. So, if you need a doctor, would you refer to a full-time specialist or a part-timer?
My reservations aside, many may wish to become advisors but may be unable to leave their jobs. So, this may be beneficial for them. We asked some SEBI registered fee-only advisors from our curated list about their views on this development. This is what they had to say.
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SEBI RIA Abhishek Kumar, Website: sahajmoney.com
This is a welcome step from SEBI as this would allow prospective RIAs to test the waters before taking the plunge into full-time investment advisory. When I started SahajMoney in 2017, I had to leave my full-time job to comply with SEBI RIA regulations. However, I urge SEBI to ensure that future part-time RIAs fully comply with SEBI RIA regulations, just like full-time RIAs, so that investors are not taken for a ride by non-serious players.
SEBI RIA Upasana Mondal, Website: dreamblueprintz.com
Allowing part-time investment advisors could undermine the consistency and depth of advice that clients receive, as part-time roles may lack the dedication required to stay fully informed and responsive to market changes. This shift risks compromising the quality of guidance, as advisors juggling multiple responsibilities might not provide the thorough analysis and timely support essential for effective investment strategies. For clients seeking reliable and focused advisory services, the assurance of full-time commitment remains crucial to achieving their financial goals.
SEBI RIA Ajay Pruthi, Website: plnr.in
SEBI’s proposed rules allow part-time Registered Investment Advisors (RIAs) to have good intentions, aiming to provide more flexibility and increase the availability of advisory services. However, the practicality of these rules is questionable for the following reasons:
- Conflict of Interest: There are concerns about potential conflicts of interest and whether part-time advisors can maintain the same level of fiduciary responsibility as full-time RIAs.
- Investor Protection: While the move could democratize access to financial advice, robust regulatory oversight will be crucial to protect investors’ interests.
- Holistic Knowledge: Advising on finances requires a deep understanding of financial products across segments. It’s doubtful that part-time advisors can devote the necessary time to gain this knowledge, despite possible exceptions.
- Analogy with Healthcare: Similar to how we trust a doctor over a chemist for complex health issues, clients need advisors with comprehensive knowledge for their financial well-being.
- Long-Term Impact: In the long run, this could damage the reputation of investment advisors. With new regulations requiring minimal experience and just a simple exam, investment advisors may proliferate, potentially lowering the quality of advice.
SEBI RIA Preeti Zende, Website: apanadhan.com
Every discussion needs a context, and the context here is that SEBI wants to radically increase the number of Investment Advisers. This directions has been signaled in multiple sessions. After more than a decade, just 1000 individuals/entities have a valid IA license. To increase the number, SEBI has proposed drastic changes in the education and experience criteria. If this proposal gets implemented, a large number of people would be eligible to apply for IA license. Enabling part-time IAs is an extension of this. A professional who otherwise meets the criteria, is committed to providing fiduciary advice, but is unsure of the viability of practicing as an IA, can take the part time IA license. They would have appropriate limitations – number of clients, etc.. But they would be able to stand with other IAs and work with clients. Hopefully they would be able to ascertain their preparedness to become a ‘full time’ IA and migrate over time. The possibility of doing this part-time, without having to stop their current work/profession, would expand the pool of qualified people.
A flip side is that this may invite ‘not very serious’ applicants; hopefully, the application and approval process would be able to filter them out.
An interesting fact. A SEBI person gave an example of an IIT professor who would be interested in being a part-time IA. A lot of people assumed that this was a reference to the editor of freefincal! But others who were in the meeting clarified that the reference was to someone else.