Will you ever go to a doctor for consultation who had opted for the non-medical field?
Or
Would you hand over your legal case to a person having no understanding of law & order?
Of course not!
But SEBI’s new circular has amended a few points through which unqualified people would be eligible to give you tips and advisory services.
In a surprising move, SEBI, India’s regulatory body for the securities market, has introduced amendments to its rules governing eligibility to become Registered Advisors (RA) and Investment Advisors (IA).
This would lead to the entry of fake influencers and untrained persons as an RA or IA in the stock market which could lead to many potential dangers.
Let’s get into the detail of what changes SEBI has made in terms of qualifications and experience.
1. No Need for a Post-graduation Degree
Previously, SEBI required individuals aspiring to become RAs or IAs to hold a postgraduate degree in finance or related fields.
This ensured a certain level of academic knowledge and understanding of the financial market.
However, as per the new SEBI circular, this requirement has been removed. Now, any graduate can appear for the RA and IA exams.
At first glance, this seems like a step towards broadening the access of the advisory profession to large groups of people. But without proper academic grounding, can these individuals provide sound financial advice?
2. Experience Requirement Removed
Another key amendment is removing the requirement for RAs and IAs to have at least five years of experience in the financial markets. Previously, this clause ensured that only those with substantial real-world market exposure could qualify as advisors.
By eliminating this requirement, SEBI has opened the gate for the advisory profession for anyone including those who have no meaningful experience of the same.
This change could lead to potential dangers like the rise of fake influencers, or “finfluencers,” who are popular on social media but lack the expertise needed to guide investors.
3. NISM Certification Renewal No Longer Required
SEBI has also removed the requirement to renew the NISM certification for RAs and IAs in the new circular. Previously, certifications needed to be renewed after every 3 years, ensuring that advisors stayed updated on the latest market trends, regulations, and best practices.
The removal of this clause further dilutes the quality control mechanism, allowing advisors to operate without regularly refreshing their knowledge.
Instead, in one of our podcasts Advocate Vikas Gupta suggested that instead, SEBI must have increased the level of the exam to test knowledge of existing RA or IA.
Further, he added that SEBI must arrange proper training programs to improve the skills of RAs & IAs. However, there is no mention of such initiatives by the regulatory body.
What Could This Mean for Investors?
The likely result of these regulatory relaxations is a flood of underqualified advisors entering the market.
Social media finfluencers, whose primary goal is often to increase their follower count, may start offering financial advice without a solid understanding of market fundamentals or risk management.
This will increase the risk exposure of investors using the services of those IAs or RAs.
Is There a Hidden Agenda?
If we look at the numbers of registered IAs & RAs which are 1,300 and 900 respectively, the ratio concerning active demat accounts is way less.
This raised the big question here whether these changes are truly aimed at opening up the profession to a broader audience or if there are deeper motivations at play.
Some might argue that SEBI’s move is intended to encourage more young people to enter the financial advisory space, which is traditionally dominated by older, more experienced professionals.
Others, however, may see this as an opportunity for unqualified individuals to exploit a regulatory loophole, putting retail investors at risk.
Conclusion
While SEBI’s new circular seems to promote inclusivity by lowering academic and experience barriers, it also exposes the market to potential dangers.
Just like you wouldn’t trust a doctor with no medical background to handle your health, or rely on someone without legal knowledge to manage your legal case, it’s equally risky to entrust your financial future to someone who lacks the required expertise and experience in the financial markets.
Financial advisors play a critical role in shaping investment decisions, and lowering the entry barriers for this profession could compromise with the quality and reliability of the advice they offer.
Investors need to be more cautious than ever before when choosing an advisor, ensuring that their chosen professional has not just cleared an exam but has the necessary knowledge, experience, and ethics to provide sound advice.
Hence, there would be a need for Investors to remain vigilant, conduct thorough research, and avoid placing blind trust in fininfluencers becoming RA or IA & trying to reap the benefit of their fan followings.
