India’s Missing Investment Advisers
India’s investment landscape has been going through a significant transformation over the past few years, with the Securities and Exchange Board of India (SEBI) actively introducing regulatory reforms to address investor concerns. One of the most significant reforms was the introduction of the Registered Investment Advisers (RIA) regulations, which aimed to bring transparency into the industry and help investors make informed investment decisions.
However, despite the regulatory overhaul, there seems to be a considerable gap between the number of investors seeking investment advice and the number of qualified investment advisers available. This gap has led to a rise in unregulated “finfluencers” who mislead unsuspecting investors and put their investments at risk.
In this article, we take a deep dive into the world of Indian investment advisers, the impact of SEBI regulations, and the rise of the finfluencers.
SEBI Regulations and the Rise of Registered Investment Advisers (RIA)
The SEBI’s RIA regulations, introduced in 2013, were aimed at regulating investment advisers and creating a transparent investment landscape for investors. These regulations stipulated that all entities providing investment advice had to register with SEBI and abide by a strict code of conduct.
The regulations also required investment advisers to charge fees only to their clients and not receive any commissions or other benefits from product manufacturers, thereby eliminating any potential conflicts of interest.
At the time of their introduction, the RIA regulations were widely welcomed by investors and industry insiders as a much-needed reform in the investment industry. However, the implementation of the regulations faced several challenges.
One of the biggest obstacles was the lack of clarity regarding the definition of an investment adviser. The regulations defined an investment adviser as any person who provides advice relating to investments but did not provide any further guidelines on who could be considered as an investment adviser.
This lack of clarity led to several entities offering investment advice without registering with SEBI, citing that they did not fall under the definition of an investment adviser.
Another major challenge faced by SEBI was the low number of RIAs in India. According to a report by , there were only 1,200 registered investment advisers in India, which is a minuscule number when compared to the vast population of investors.
The report suggests that the low number of RIAs in India is due to a lack of awareness among investors about the importance of seeking professional investment advice and the stringent regulatory requirements that must be met to become an RIA.
The Rise of Finfluencers and the Dangers of Unregulated Investment Advice
The lack of registered investment advisers in India has created a power vacuum, which has been quickly filled by unregulated finfluencers who offer investment advice and financial tips to their followers on social media platforms such as Instagram, Twitter, Facebook, and YouTube.
These finfluencers do not hold any professional qualifications or certifications, nor do they have any regulatory oversight. Yet, they continue to attract large audiences and sway public opinion, often with dangerous consequences.
Many of these finfluencers are known to offer investment advice on high-risk products without mentioning the potential risks or offering any disclaimers. They often lure unsuspecting investors into risky investments, which can lead to significant losses.
In addition, many of these finfluencers have been caught promoting products or services in exchange for commissions or other benefits, thereby proving to be just as conflicted as the unregulated product peddlers they are replacing.
The danger of such unregulated investment advice is that investors who follow these finfluencers risk losing their hard-earned money without any legal recourse or compensation.
Closing the Gap: The Way Forward
There is an urgent need to bridge the gap between the number of investors seeking financial advice and the number of qualified investment advisers available.
One solution is to increase awareness among consumers about the benefits of seeking professional investment advice and the potential dangers of following unregulated finfluencers. This can be done by reaching out to potential investors through social media channels and other communication platforms.
Another solution is to streamline the RIA registration process and ensure that there is a robust infrastructure in place to support registered investment advisers. This would include creating a regulatory body to oversee registered investment advisers and provide guidance and support to those looking to become RIAs.
Finally, there is a need to recognise the significance of qualified investment advisers in the Indian financial landscape. One way to achieve this is by according RIAs a separate asset class, similar to other professionals such as chartered accountants or lawyers. This would elevate the importance of RIAs in the eyes of investors and incentivise more people to pursue a career in investment advisory.
The Indian investment landscape is going through a transformational period, with the introduction of SEBI regulations aimed at bringing transparency and accountability to the industry. However, the low number of registered investment advisers coupled with the rise of unregulated finfluencers threatens to undermine these efforts.
It is critical to bridge the gap between the number of investors seeking financial advice and the number of qualified investment advisers available. This can be achieved by increasing awareness among investors about the importance of seeking professional investment advice and streamlining the RIA registration process.
With the right support and infrastructure, investment advisers can play a vital role in helping investors make informed investment decisions and grow their wealth safely and securely.