RIA association writes to SEBI as new advertisement rules come into effect

Many registered investment advisors have been taking to social media to express their dismay about the new rules on advertisements that came into effect on May 1, 2023. Amid many RIAs putting out anxious tweets, the Association of Registered Investment Advisors (ARIA) has written to SEBI seeking clarification on some points in the recent circular on advertisements for RAs and IAs.

RIAs are concerned that their communication with existing clients might be hit because of the new regulation on advertisements. “There is a lack of clarity on whether or not the rules apply to our existing clients. Do we need to take approvals for that as well? The ambiguity is also around communication on our websites, which have nothing but informative content,” says an RIA in terms of anonymity.

Another RIA based out of Mumbai said that they have been informed that websites will, in fact, come under the new ad rules and will have to be approved by sebi-recognised supervisory bodies twice a year. “We have been told that the websites, no matter if they are updated or not, have to go through screening from regulatory bodies and that is not only an added compliance but also will be an added cost,” said the RIA.

Apart from this, industry sources tell CNBC-TV18 that Sebi is also planning on formulating a centralised investment account for RIAs to collect money from investors. This means RIAs will not be allowed to take money directly from the investors but from the central account after getting it cleared by the regulator. Sebi is in talks with ARIA for the same and a consultation paper is likely to come out soon.

This move is also seen by many RIAs as a compliance requirement that will lead to delays in payments. A senior member of ARIA says that many moving parts in the compliance framework are making RIAs anxious. While smaller RIAs say that they see a threat to the viability of their business.

At least five RIAs that CNBC-TV18 spoke to said that the profit margins have gone down significantly since the 2020 RIA regulations were put down by SEBI and increasing compliance in hindering the smooth functioning of their business.