How Sebi’s reforms could transform India’s investment advisory landscape

livemint.com:

In a significant relief for beleaguered investment advisors, the Securities and Exchange Board of India (Sebi) has proposed relaxing existing regulations on qualifications for registered investment advisors (RIAs) and research analysts. This comes after years of tightening rules that have strained the industry.

The consultation paper, released on Tuesday, also seeks to clarify various ambiguous legal provisions that apply to Sebi registered investment advisors (RIAs). Mint breaks down the proposed norms for RIAs.

India has a mere 984 investment advisors for a population of 140 crore. The advisory sector is vastly underrepresented, especially compared to India's 4.7 crore mutual fund investors and 9.6 crore direct stock investors (demat account holders). The number of RIAs has plummeted from around 1,300 just a year ago, highlighting the urgent need for reform. Sebi's consultation paper outlines several relaxations to stem this decline.

First, Sebi proposes to relax the education and experience criteria. It seeks to do away with the experience requirement of five years and post-graduate degree in specific subjects for an investment advisor.

The markets regulator also proposes to scrap the requirement of post-graduate degree and two-year experience requirements for a person associated with investment advice or PAIA. As per the proposal, a PAIA can be a graduate in any discipline.

The markets regulator also seeks to drop the net worth criterion for an investment advisor and reduce it for a corporate RIA from ₹50 lakhs to ₹5 lakh for up to 1,000 clients, and ₹10 lakh if there are more than 1,000 clients.

RIAs will also have more flexibility in switching between the fixed and percentage fee ( ₹1.25 lakh and 2.5%). The cap