InvestorQ : What are some of the key risks that one can see in the new RIA regulations brought out by SEBI?
Aashna Tripathi made post

What are some of the key risks that one can see in the new RIA regulations brought out by SEBI?

Moii Chavate answered.
3 years ago

The first challenge is on the risk profiling itself. While idea is laudable, the practical implementation may be more complex. Firstly, there is no standardized risk profiling tool. A better method would be to authorize a common basic profiler on which RIA should be allowed to build. Unless this process is standardized, it is unlikely to be effective. Also, there are many cases where small investors are not interested in a detailed profiling and that choice needs to be respected.

Secondly, the regulator has also barred free trials to customers. RIAs often give free trials and pay-later schemes to potential clients. The idea is that such samples can be used to woo the clients to avail fee-based services. Now SEBI has put a ban on such freebies, since such advice is not based on risk profiling as explained in the first paragraph. This would actually make the entire task very rigid. Most RIAs are independent professionals and are under pressure to expand their client base to keep their business profitable. However, banning free trials would take away the flexibility that the RIA enjoys vis-à-vis the clients. Of course, once the client is on-boarded, then SEBI is right in insisting on a detailed profile. The RIAs must have greater leeway to offer their palate of services to customers.

A delicate issue could be the mandatory disclosure of all complaints as such complaints will now have to be disclosed on the website of the RIA. This would tantamount to negative publicity for their business interests and is best avoided. With the proliferation of social media and other discussion forums, the very concept of a complaint has become broader and all-encompassing. Ideally, SEBI can mandate that complaints that are not redressed within a span of 15 days must be disclosed; which is fair. That will put pressure on RIAs to reduce TAT. RIA is still a young profession and too much regulation will not help!