How to become a Registered Investment Adviser (RIA) in India

In India, not everyone can offer investment advice. They will first have to be registered as an investment adviser (RIA) with SEBI. Once registered they have the obligation to act as a fiduciary. Meaning they will have to put the client first at all time. Or in other words, prescribe only commission free products.  Whether you are only an investor or are looking to become an investment advisor, the following guest post is a compelling read.

In this post, Melvin Joseph one of the first RIAs in India (he was a fiduciary even before it was legally required to be one) discusses the requirements and qualifications to become a registered investment advisor in India. Melvin is one of the very few advisors who we can be sure earns money only from us and not via commissions.  Over to Melvin.

How to become a Registered Investment Adviser (RIA) in India?

Till 2013, there was no clarity on who can be an Investment Adviser in India. In the absence of any regulations anybody could claim himself as an adviser.

Why SEBI Regulation is necessary for Investment Advisers?

Most financial products in India are loaded with the agent’s commission and the products are too complex for the investor to understand. Agents used to advice clients which were not really in the interest of the investors. Since the agents represent few companies, they can sell products of only those companies. Market Regulator, Securities and Exchange Board of India (SEBI) felt the need of segregating distribution and advice. SEBI come out with Investment Advisers Regulations (2013) which is a welcome step in the interest of the investors. As per this no person shall act as an Investment Adviser unless he has obtained a certificate of registration from SEBI. This will help an investor to avail the services of an RIA and make investments without the fear of any conflict of interest. The RIA is compensated only through the fee paid by the investor. This will ensure that the RIA will protect the interest on the investors by recommending the best suited financial products as per the need of the investor.

Image credit lendingmemo
Image credit lendingmemo

Who can be an Investment Adviser in India?

An individual, partnership firm, body corporate or a company can apply for registration as Investment Adviser.

Qualification to apply for registration as an Investment adviser in India

If you want to apply for registration as an Investment Adviser in India, you should have the following minimum qualifications:

(1)  A professional qualification or post-graduate degree or post graduate diploma in finance, accountancy, business management, commerce, economics, capital market, banking, insurance or actuarial science  or

You should be a graduate in any discipline with an experience of at least five years in activities relating to advice in financial products or securities or fund or asset or portfolio management.

(2) A certification on financial planning or fund or asset or portfolio management or investment advisory services from (a) NISM or (b) from any other organization or institution including Financial Planning Standards Board India (FPSB) or any recognized stock exchange in India provided that such certification is accredited by NISM.

In simple words, a post graduate in finance related topics or a graduate in any discipline with 5 years experience in financial sector can pass the following 2 examinations by National Institute of Securities Markets (NISM) and apply to SEBI for registration as an Investment Adviser.

  1. NISM – Series-X-A: Investment Adviser (Level-1) Certification Examination
  2. NISM- Series – X-B: Investment Adviser (Level-2) Certification Examination

In lieu of the above 2 examinations, you can pass Certified Financial Planner (CFP) examination of the Financial Planning Standards Board India (FPSB).

You should also have net tangible assets of not less than rupees one lakh if you are an individual or partnership firm. For others, the net worth should not be less than 25 Lakhs rupees.

Fees to be paid

If you are applying as Individual or Partnership Firm, the application fee is Rs. 5000/-. Otherwise, it is 25,000. Once your application is approved, you have to pay the registration fee of 10,000 if you are applying as Individual or partnership firm. For others, the registration fee is 5 Lakhs.

Process of application for registration as an Investment adviser (RIA)

You can get the details from SEBI website. Please see the relevant link giving the details.

http://www.sebi.gov.in/cms/sebi_data/attachdocs/1369826090264.pdf

You have to apply to SEBI in Form A (attached below)

http://www.sebi.gov.in/cms/sebi_data/attachdocs/1358779330956.pdf

Documents to be submitted to SEBI along with application

You have to submit the following documents (self attested) along with application in Form A.

  1. Proof of Identity
  2. Proof of address
  3. Proof of qualification
  4. Experience Certificate in case of graduates
  5. CIBIL Score
  6. Net worth certificate from a Chartered Accountant
  7. Income Tax Returns for the last 3 years
  8. Application fee of 5000/25,000 as applicable
  9. Various declarations as the case may be.

You have to send these documents to the Regional/Local office of SEBI in your area. You also have to send a soft copy to SEBI.

SEBI will scrutinise your application and if there is any discrepancy, they will point out so that you can rectify them. Once your application is approved, you will get an intimation to pay the registration fee.  You can make the fee payment (10,000 or 5 Lakhs) at this stage. On receipt of the fee, you will get registration as Investment Adviser.

The registration is valid for 5 years and the same process is to be followed for renewal. The fee structure also will be the same for renewal. The application for renewal must be given to SEBI 3 months before the expiry of registration.

Compliance Issues

An investment adviser which is a body corporate or a partnership firm is required to appoint a compliance officer who shall be responsible for monitoring the compliance by the investment adviser. In the case of an individual RIA, he himself is responsible for such compliance. Yearly audit by a Chartered Accountant is required to ensure compliance.

An investment adviser shall act in a fiduciary capacity towards its clients and shall disclose all conflicts of interests as and when they arise. He shall act honestly, fairly and in the best interests of the clients.

Grievance Redressal

SEBI has launched a new web-based grievance redressal system called SEBI Complaint Redress System (SCORES). Investors can lodge their complaints at http://scores.gov.in. On receipt of complaints, SEBI takes up the matter with the concerned investment adviser and follows up with them for redressal.

Fees from Clients

SEBI Regulation is not fixing any scale of fee to be charged by the Investment Adviser from clients. It is as per the agreement between the client and the investment adviser. Further, an investment adviser shall ensure that fees charged to the clients are fair and reasonable.

Distribution activities by RIA

If you are a SEBI registered Investment adviser, you cannot sell any financial products to your clients and earn commission. This rule is to ensure that you recommend the best-suited products to the client without any conflict of interest.

But RIAs other than Individuals can have a separate division for distribution! The adviser is required to segregate distribution and execution services. The investment advisory has to be provided by a separately identifiable department or division or through a subsidiary. Further, such distribution or execution services can only be offered subject to the following conditions:  The client shall not be under any obligation to avail the distribution or execution services offered by the investment adviser or its affiliates. The investment adviser shall maintain arms length distance between its activities as investment adviser and distribution or execution services.

An investment adviser shall disclose to his client, any consideration by way of remuneration or compensation or in any other form whatsoever, received or receivable by him or any of his associates or subsidiaries for any distribution or execution services

Individuals registered as Investment Adviser can continue to receive the trailing commission for the distribution services provided by them prior to grant of registration as an Investment Adviser.

Who are exempted from SEBI registration?

Insurance agents or insurance brokers registered with IRDAI, pension advisors registered with PFRDA, who provide advice in various insurance /pension products are exempted from getting SEBI registration. Mutual Fund Distributors registered with Association of Mutual Funds in India (AMFI) can only provide basic advice to its mutual funds clients incidental to its distribution activity. They can also function without SEBI registration. Members of the Institute of Company Secretaries of India, Institute of Chartered Accountants of India, Institute of Cost and Works Accountants of India who provide investment advice to their clients incidental to their professional services are exempted from obtaining registration under IA Regulations.

Fee only financial Planners

If you are looking for a financial planner, it will be better to approach a fee only financial planner who is not into any distribution activities. Distribution through the sister concern can also defeat the spirit of fee only financial planning. You can get the list of fee only financial planners in India from SEBI website. A privately curated list is also available at freefincal.

List of Fee-only Financial Planners in India

Please join me in thanking Melvin for taking the time to write this instructive article. Please feel free to ask clarifications. Melvin will be happy to respond.

Are you a SEBI RIA? Do you suggest direct mutual funds only to your clients even if they do not ask for it? Then contact me and I shall be happy to include you in the above list.

 

 

 

 

 

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22 thoughts on “How to become a Registered Investment Adviser (RIA) in India

  1. S Srinivasan

    I graduated from IIT Madras 30 years ago and I have been in the Tech sector for 30 years running various roles. including managing large businesses. I have been helping many people over the years pro-bono in their financial and investment planning, purely out of interest in this domain.
    I now wish to be a RIA, is it possible? [Specifically this whole funda about being a grad in the field of finance!]
    Looking forward to any thoughts/ help in this regard.

    Thanks.

    Reply
  2. Jai

    I have extensive experience in creating systematic multi-factor stock portfolios for both US and Indian markets.

    I have been doing investment research and creating quantitative models for 27 years. I have published numerous newsletters overseas and advised hedge funds & institutional investors in the US.

    My risk-averse stock portfolios are self-adaptive and outperform all mutual funds. Being an engineer and computer scientist by training, I do not have a degree in finance or a related field.

    Looking at SEBI's criteria, I am probably not qualified to be an investment adviser, while a 21 year old fresh graduate can easily get a RIA certification. Go figure!

    Reply
  3. Rajesh Rathod

    I have the same question. What if we do not have a degree in Finance? Any alternative?
    Thanks in Advance!

    Reply
  4. Sumit

    Hii Finfreecal and Malvin, Thank you for much required information.

    My question is for Malvin. I am undergraduate and have been into distribution of Mutual Funds since 12 years, Have also completed CFP certification recently. I wanted to take up as an RIA in individual capacity. Does me being under Graduate can be a RIA??

    Reply
  5. Dr Rajnikant Gajjar

    A professional qualification or post-graduate degree or post graduate diploma in finance, accountancy, business management, commerce, economics, capital market, banking, insurance or actuarial science or

    A PROFESSIONAL QUALIFICATION LIKE M D IN ANAESTHESIA or POST GRADUATE DEGREE LIKE MA in HISTORY is eligible as minimum qualification?

    or post graduate diploma in finance, accountancy, business management, commerce, economics, capital market, banking, insurance or actuarial science or

    is above specialisation limited for post graduate diploma only?

    issue is not clearly defined so it does need right clarification

    Reply
  6. Melvin Joseph

    Though you are graduated from one of the prestigious institutes in the country (IITM) and worked in senior levels in tech sector, I am afraid you will not qualify for the SEBI criteria. Regarding experience criteria also, I am doubtful because your experience in financial advice is more casual in nature out of your passion and not as a full time option. However, you may check up with SEBI giving your details.

    Reply
  7. Melvin Joseph

    Hi Rajesh, In the absence of a Post Graduate qualification in Finance & related areas, you can apply if you are a graduate & is having 5 years experience in the financial advisory sector.

    Reply
  8. Basudev Tewari

    How much is the earning part as a RIA starter? I am a practising doctor and also passed NISM Xa and preparimg for Xb besides clearimg NISM Vb. I am doing these purely out of passion. My other question is can I be a RIA if NISM Xb can be cleared, and the income added up with my current practising income? Thanks to Pattu and Malvin sir in advance...

    Reply
  9. Ivpvarma

    Sir if the applicant is not a tax payer and he has no obligation to file IT returns then what should he do ? How can he submit past 3 years returns ?is there any exemption for them or they need to forcefully submit the IT returns ?

    Reply
  10. Melvin Joseph

    If you don't have a tax liability in the past 3 years, you were not supposed to file the income tax returns. You may submit the RIA application without IT returns clearly mentioning this fact. They may take a call in such cases.

    Reply
  11. Parsh

    Hi Mr Melvin / Mr Pattu,

    I am a MBA in General Management including Financial subjects as part of my course, with 10+ years of experience in IT sector.

    As an alternate profession of interest I want to pursue on RIA. Is it possible? I have already enrolled for Level 1 test of NISM.

    Reply
  12. Melvin Joseph

    The condition is a professional qualification or post-graduate degree or post graduate diploma in finance, accountancy, business management, commerce, economics, capital market, banking, insurance or actuarial science. I think your MBA including financial subject may satisfy this criteria. Please confirm from SEBI. In that case, you can complete the 2 levels of NISM and apply for RIA.

    Reply
  13. Sunil Gauswami

    Hello,,

    I want to give NISM Level 1 (Investment Advisory) certification exam for SEBI Registration as a body corporate.My basic qualification is B.E. And i am doing trading from last 30 years. So i read somewhere that graduate person also can apply for that but needs 5 years experience in Equity Market.

    So my question is how to show that 5 years of experience for apply to NISM 1 & 2 exam for SEBI? Any certificate or D-mate Account record or my trading portfolio?

    Reply
  14. Melvin Joseph

    I am not sure how SEBI will consider a engineering graduate with trading experience in this case. You may check up with SEBI.

    Reply

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