Securities And Exchange Board of India (Sebi) Chairperson Madhabi Puri Buch, on October 4, 2023, revealed at the Association of Registered Investment Advisers (ARIA) conference that India needs one million registered investment advisor (RIA), but not the ‘Indore type’ of advisors.
She emphasised that India needs at least a million genuine RIAs who are focussed on providing financial advice rather than trading calls. This has come in the backdrop of increased complaints against investment advisors registered in Indore for trading calls.
According to ARIA’s compilation of Sebi’s orders, there have been 11 actions against investment advisors (both registered and unregistered) from the year 2014 to 2020.
In 2021 and 2022, Sebi issued 12 and 36 orders respectively. In 2023, 19 orders have been issued thus far. Ironically, out of 78 unique orders against investment advisors, 32, or 41 per cent, are specifically from Indore.
RIAs operate through three models: financial planning, which offers comprehensive financial and goal planning before advising on investments; single product advice, which focuses on mutual funds or equity after risk profiling; and trading call, which offers advice on non-delivery trades, derivatives, and leveraged trading, excluding hedging.
Considering the number of complaints related to trading calls, the market regulator is of view that most RIAs carry on an unregulated portfolio management services (PMS) rather than acting as financial planners. While addressing the conference, Buch also emphasised that investment advisors need to be registered with the market regulator and provide only investment advice and not trading calls.
In wake of increased retail investor participation in the post-Covid era, Sebi has heightened its vigilance. According to an analysis by ARIA on complaints received against RIAs since inception as per the Scores website, a whopping 11,690 complaints (69 per cent of total complaints) were raised against RIAs who are currently out of business and have not registered with BSE Administrative Services Limited. (BASL). They have, in fact, surrendered their license. Interestingly, 95 per cent of the complaints are against trading call providers and equity advisory RIAs.
The financialisation of retail investors’ assets has accelerated, evident in the 120 million demat accounts and over 20 million mutual fund investors today. While high growth in retail investments is well-known, a lesser-known fact is the decline in RIAs from 1,365 before Covid to 918 today.
Surprisingly, only 918 out of 1,328 Sebi-RIAs have re-registered with BSEASL to continue practicing.
The decreasing number of RIAs amid booming retail investments is puzzling. It remains to be seen what measures Sebi will take to encourage more advisors, considering the large mass of existing investors and rapidly growing new investors.