Registered Investment Advisor (RIA): Definition, Registration & Scope

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Registered Investment Advisor (RIA): Definition, Registration & Scope

The Indian Finance Market has become one of the best places for the Indian and foreign investors to invest since it enables them to multiply their wealth overtime. The Indian Finance market has the potential to cater to the financial goals of most investors. 

For investors who want to make quick profits, investing in growth stocks that rise rapidly is a good idea. However, the financial markets tend to react to economic, financial and global factors quickly due to which the value of investments fluctuate.

When a market reacts negatively to a news, investors can be forced to incur losses on the amount which they’ve invested in the market. Remember how everyone’s shares fell drastically during the Covid-19 pandemic? This is why it would be beneficial for the investors to have a deep financial knowledge about such market factors since it can make sure that their investments make profit. 

Since most investors in majority are retail investors, it becomes complex for them to acquire such financial knowledge. This is why it would be appropriate for them to seek advice from a Registered Investment Advisor (RIA) who can help them greatly. RIAs help their clients to make investment decisions which are ideal for them, and also ensure that all the transactions are transparent. 

After going through this article, you will have a clear idea about the SEBI Registered Investment Advisor (RIA), and how an individual can get SEBI’s RIA Registration.

Who Is a Registered Investment Advisor (RIA)?

A Registered Investment Advisor (RIA) is a registered specialist who provides financial advice to his clients so that they achieve their investment goals in life. An RIA conducts financial preparation for his clients. A financial preparation is a method through which the investors can achieve their life goals by proper financial planning. An individual’s life goals can include owning his very own land, investing for his child’s education, retiring rich, etc. An RIA makes his client feel at ease and build confidence in him. He keeps himself up to date with all the ongoing business events and does his best to provide his clients with impartial advice which is practical and without any sugar coating.

Understanding the role of Registered Investment Advisor (RIA)

The Indian financial market offers multiple opportunities that can enable investors to make good profit, whether it’s in the short term or long term. However, the investments need to be based on in-depth market research and extensive security analysis. Without due diligence while making investments, an investor is more likely to face heavy losses. But, is it necessary for an investor to learn about all the important factors of the financial market? No, it really isn’t. Honestly, for investors who do not have exposure to the financial market, it is next to impossible to have such extensive financial knowledge before they begin to make any investments. But their lack of financial knowledge shouldn’t be a deterrent when it comes to investing their money in the financial market. Their lack of extensive financial knowledge can be accommodated by an RIA.

The profession of RIA requires an individual to be thoroughly familiar with the financial market and every financial aspect included within. An RIA is well-trained and experienced to analyze the client’s financial situation and recommend to him the most suitable investment opportunities accordingly. For instance, if an investor’s goal is to retire wealthy, an RIA might recommend securities that might be slightly volatile but can offer high returns. However, if his goal is to just save up enough money for leading a comfortable life after retirement, an RIA might recommend to him securities that are less volatile and can provide high returns without losing value.

An RIA is a professional who is registered with the Securities and Exchange Board of India (SEBI). An RIA is a licensed-advisor who assists his clients by offering him financial advice regarding various financial instruments. In India, a registered investment manager plays various roles such as tax-saving advisor, portfolio manager and financial advisor, but some RIAs might charge a certain percentage of the assets managed by them as a commission from their clients.

Eligibility Criteria for Registered Investment Advisor (RIA)

Being a registered advisor comes with the major responsibility of handling finances of other individuals. A good RIA is someone who comes with extensive financial knowledge that he’s willing to impart for the benefit of his clients and is passionate about his profession with an ever-growing interest.

• If you’re interested in becoming a Registered Investment Advisor (RIA), the following is the eligibility criteria for this profession:
• The interested individual must have a minimum age of 21 years.
• He must possess a minimum 5 years of relevant experience.
• No prior convictions regarding any economic offense or securities laws’ violation must be committed by him.
• He must not be a stockbroker or sub-broker, depository participant or associated with one.
• In case of an individual, the net worth must be at least Rs. 5 lakhs. Whereas in case of non-individual, the net worth must be at least Rs. 50 lakhs.

Qualification

The individual needs to have a graduate degree in finance, economics, or business administration or a professional qualification such as CA, CFA, or MBA. He must also pass the certification examination conducted by the National Institute of Securities Markets (NISM) or any other organization recognized by SEBI.

Registration as a Registered Investment Advisor (RIA)

In order to become a SEBI Registered Investment Advisor, the following steps are required:

• Meet the eligibility requirements: You must have a relevant degree and also have work experience in a relevant field.
• Passing the NISM exam for certification: The NISM-Series-X-B: Investment Adviser (Level 1) certification exam needs to be passed by an individual before he can become a registered investment advisor.
• Submit Application for SEBI registration: In order to apply for SEBI registration, Form A needs to be filled and attached with all the necessary documents which include CIBIL score, identification, educational qualifications, experience, net worth certificate, income tax returns, and a prescribed application fee.
• Payment of Application Fee: An application fee of Rs. 5,000 is to be submitted to SEBI.
• Wait for the approval of SEBI: Once your application is successfully received by SEBI, it will review it and may seek additional information if necessary.
• Issuance of SEBI Registration Certificate: Once your application is approved by SEBI, it will issue you a registration certificate which will enable you to offer advisory services.
• Compliance with the SEBI regulations: While offering advisory services, you must comply with all the regulations of SEBI and also maintain the ethical standards.

SEBI Regulations For An RIA (Registered Investment Advisor)

SEBI understands the significance of RIAs in the Indian Financial Market. However, since the personal capital of clients and numerous financial transactions are involved, SEBI has stated various regulations which need to be followed by RIAs. The individuals, in order to be eligible for becoming an RIA, must have a minimum of Rs. 5 lakhs as their net worth. In case of companies and partnership firms, the networth must be Rs. 50 lakhs. They need to obtain NISM level 2 certification and a professional qualification degree in related subjects such as banking, finance and the like. According to SEBI, an advisor can charge a fee of 2.5% of Assets under Advice per annum per family or a flat fee of Rs 1,25,000 per annum per family. All the advisors, as mandated by SEBI, are required to maintain an agreement related to the investment advisory services in order to create transparency between the advisors and their clients by based on the agreed terms, fees and transactions.

Who Needs To Register As A Registered Investment Advisor (RIA)?

Any financial entity such as a firm or a group of companies, or an individual can become a financial advisor and start a business where they offer financial investment advisory services to people who lack extensive financial knowledge about various financial instruments.

To enable offering financial investment advisory services, an individual/partnership firm/sole proprietorship/corporate body needs to apply for an RIA license. An individual investment advisor can provide advisory services of a maximum of 150 clients. If the number of clients exceeds 150, the RIAs are mandated to register with the Securities and Exchange Board of India as ‘Non-Individual RIAs’.

The following entities are exempted from getting SEBI-registered once they apply to become a Registered Investment Advisor (RIA):

• IRDA-licensed Pension advisors
• IRDA-licensed Insurance brokers or agents
• Institute of the Cost and Works Accountants of India’s Members
• Members of the Institute of Company Secretaries of India
• Members of the Institute of the Chartered Accountants of India.
• AMFI-licensed Mutual Fund distributors.

The Scope Of Registered Financial Advisors In India

Personal RIAs are not just for the elites. An RIA helps his client to systematically develop, grow, collect and ultimately use his wealth to fulfill his family goals, career goals, education goals, etc. An RIA offers advisory services based on the client’s needs, budget and risk appetite. RIAs have helped many people to achieve their ultimate goal of enjoying their retirement lives without compromising on their standard of living. 

Registered Investment Advisors can provide advisory services for the following:

• Savings systematically
• Control of cash flow
• The management of debt
• Allocating assets for investment
• Risk management via insurance planning
• Tax methods to raise the investment surplus
• Distribute residual capital by the preparation of estates.

People with remarkable communication skills combined with an in-depth understanding of the functioning of the financial industry can be good candidates for the profession of RIA. Such people can work for a bank, brokerage firm or even practice independently as an RIA.

Conclusion

RIAs provide sound advice and create a strong financial foundation for their clients. In return, they’re rewarded with high salary, flexibility in work schedules and control over their practice. If you’re interested in obtaining an RIA license, get in touch with Registrationwala! We would be glad to help you in your journey to becoming an RIA.

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