Comprehensive Guide for Registered Investment Advisors RIAs: Fees and Commissions for Non-SEBI Products
Registered Investment Advisors (RIAs) play a crucial role in providing diversified financial products and services. Kamlesh Varshney of SEBI addresses how they can charge fees or receive commissions for products not regulated by the Securities and Exchange Board of India (SEBI).
Key Points:
- Product Offerings: RIAs can introduce non-SEBI regulated products.
- Fee Structure: Flexibility in fee and commission structures.
Non-SEBI Product Fees and Commissions
Overview
Varshney confirmed that RIAs can manage and charge for non-SEBI products. He clarified that:
- Fees for non-SEBI products are not restricted by SEBI caps.
- There is no need for RIAs to use different entities for these products.
Disclosure Requirements
RIAs must:
- Disclose non-SEBI product fees as a separate line item in invoices.
- Obtain a signed disclaimer from clients stating they can’t file complaints with SEBI for non-SEBI products.
Features and Benefits:
- Transparency: Clear fee disclosure builds trust.
- Client Awareness: Disclaimers ensure clients understand their rights.
Encouraging Growth of RIAs
Expansion Initiatives
Varshney emphasized the need to increase the number of active RIAs without specifying exact targets. SEBI’s proposed measures include:
- Lower eligibility criteria
- Elimination of net worth requirements
- Eased fee regulations
Benefits:
- Accessibility: Attractive entry for professionals.
- Diverse Expertise: Inclusion of varied financial backgrounds.
Classification of Financial Products
Categorization
Products can be segmented into three categories:
- Basket 1: SEBI-regulated products
- Basket 2: Products regulated by other entities
- Basket 3: Unregulated products
Clarification:
RIAs can offer products across all three categories, facilitating comprehensive financial planning.
Industry Insights
Harsh Roongta, an RIA and ARIA member, praised SEBI’s approach:
- Comprehensive financial advice through regulated entities.
- Clear grievance redressal processes for SEBI-related products.
Benefits:
- Comprehensive Solutions: Enabling holistic financial planning.
- Regulated Environment: Ensuring discipline and trust.
Challenges and Requests
Unaccepted Proposals
Varshney addressed and declined ARIA’s request to charge advice-based fees for assets under management (AUM) orphaned or distributed through another entity.
Summary:
- Challenges: Addressing conflicting objectives.
- Outcome: SEBI maintained its stance to ensure clarity and client understanding.
Further Elaboration on SEBI’s Guidelines and Their Implications for RIAs
Global Perspective on Financial Oversight
Financial regulations are invariably complex, yet they serve as a bedrock for ensuring trust and integrity in financial markets. SEBI’s recent clarifications provide a robust framework for RIAs operating within and beyond India.
International Comparisons
- Global Standards: Many international regulatory bodies, such as the SEC in the United States and the FCA in the United Kingdom, are adopting similar flexible and transparent approaches.
- Cross-border Compliance: For businesses with global aspirations, understanding these regulations is critical. Estabizz Fintech is equipped to assist clients in navigating these multifaceted regulations across jurisdictions.
Detailed Benefits for Business Owners and RIAs
- Enhanced Trust: Clear fee disclosure and signed client disclaimers elevate transparency and client trust.
- Regulatory Clarity: The categorization of products into three baskets simplifies the understanding of compliance requirements.
Practical Steps for RIAs
Implementing Fee Disclosures
- Invoice Transparency: Break down fees into detailed line items for SEBI and non-SEBI products.
- Client Education: Ensure clients fully understand the terms of service, including which products fall under SEBI’s grievance redressal mechanisms.
Engaging New Professionals
- Lower Barriers to Entry: Encourage skilled professionals by highlighting reduced eligibility criteria and the elimination of net worth requirements.
- Ongoing Education: Provide continuous learning opportunities to stay updated with regulatory changes and industry best practices.
Addressing the Unaccepted Proposals
Advisory Fees for Orphaned AUM
- SEBI’s Position: While the request to charge advice-based fees for orphaned AUM was declined, it opens up broader discussions on the evolution of fee structures within the industry.
- Future Prospects: Staying engaged with regulatory developments is crucial. Estabizz Fintech can provide ongoing updates and insights into these evolving trends.
Key Takeaways: Empowering RIAs for Future Success
- Regulatory Flexibility: Embrace the opportunities presented by the ability to offer a diverse range of products.
- Client Trust: Foster trust through transparent fee structures and clear client communications.
- Professional Growth: Take advantage of SEBI’s initiatives to attract more professionals into the RIA domain.
- RIAs Flexibility: Ability to offer non-SEBI products with independent fee structures.
- Transparency and Trust: Essential through clear disclosures and client understanding.
- Growth and Inclusion: SEBI’s initiatives aim to increase professional participation in the RIA domain.
Estabizz Fintech compiled the material in this article using the most recent Acts, Rules, Circulars, Notifications, Provisions, Press Releases, and material applicable at the time. They ensured the completeness and correctness of the material through due diligence. When using this material, users must consult the relevant, applicable legislation. The given data may change without prior notice and does not constitute professional advice. Estabizz Fintech disclaims all liability for any results from the use of this material.
