The Securities and Exchange Board of India (SEBI) is proposing significant changes to the guidelines governing Research Analysts (RAs), aiming to address the growing concerns around illegal stock tipping and ensuring a more structured and transparent market for investors. Here’s a detailed breakdown of the proposed changes:
Scope of Research Analysts
- Current: No clear mention of the need for registration.
- Proposed: Mandatory registration for anyone getting paid for research analysis.
Model Portfolios
- Current: There is uncertainty surrounding model portfolio guidelines.
- Proposed: SEBI introduces well-defined rules for model portfolios, offering clarity and direction.
Advice/Calls
- Current: RAs could offer advice or calls without the need for a research report.
- Proposed: All advice and calls must be backed by a research report, ensuring that investors receive well-researched and informed advice.
Fees
- Current: RAs could charge advance fees without much regulation.
- Proposed: A cap of one month’s advance fees is set, protecting investors from potential misuse.
KYC (Know Your Customer)
- Current: No KYC requirements were in place.
- Proposed: KYC will now be mandatory, with RAs needing to maintain and manage these records, increasing transparency and accountability.
Relaxations in Qualifications and Requirements
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Qualification:
- Current: A professional qualification or PG degree/diploma in specified fields or 5 years of experience is required.
- Proposed: Expanded to include graduate degrees in specified fields, professional qualifications, or specific programs like NISM or CFA.
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Net Worth:
- Current: Minimum net worth of ₹1 lakh for individuals/partnerships and ₹25 lakh for corporate/LLPs.
- Proposed: No net worth requirement for individuals; however, corporate entities will need ₹5 lakh for the first 1,000 clients, increasing to ₹10 lakhs thereafter.
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Examination:
- Current: RAs need to clear exams every three years before expiry.
- Proposed: A base exam is required only once initially, with further certifications based on incremental changes.
Concerns and Challenges
- Non-Finance Degrees: Engineering degrees, often leading to roles in quant-based research, are not recognized as a valid qualification.
- Fee Limitations: RAs are now limited to charging only one month’s advance fees, which might affect their revenue models.
- KYC Requirements: The new KYC mandate could lead to increased compliance costs, especially for smaller RAs.
- Unclear Refund Rules: SEBI needs to address and clarify the refund rules to ensure there are no ambiguities.
Conclusion
SEBI’s new proposals could significantly change the landscape for Research Analysts, bringing in much-needed structure and transparency. However, the industry will need to navigate the challenges posed by these new regulations, particularly around qualifications, fees, and compliance requirements. Only time will tell if these changes will truly be a game changer for the RA license and the broader investment advisory landscape.
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I believe this change could benefit many investors. From what I’ve heard from friends and family, they often purchase annual advisory plans upfront to take advantage of discounts of 30-50%. However, a few months into their investment, they might need to withdraw completely from capital market participation due to unforeseen circumstances, such as a car breakdown or a family emergency, which would require them to liquidate their investments and raise cash to meet expenses.
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Only 1,200 RAs for a country like ours is definitely too low. There’s no doubt that many people want to take advantage of the opportunities in the equity markets, but clear guidance from someone they can trust is crucial to help them start their investing journey.
@Himanshu_Arora recently received his RA license. We would love to hear about your journey in obtaining it. Could you also share what pain points you encountered that might have been avoided with these new rules?
Thanks for bringing it up. I’ll try to share the areas where I struggled-
The process of acquiring a Research Analyst License from SEBI (Securities and Exchange Board of India) involves several stages, each with its own set of challenges or pain points.
The regulations are comprehensive and detailed. As a newcomer, I found it difficult to fully grasp all the legal requirements and ethical obligations. This complexity can be overwhelming and may lead to confusion or errors in compliance, and I had to go through it a few times.
The NISM Series XV: Research Analyst Certification Examination is rigorous and requires a deep understanding of financial concepts, markets, and regulatory frameworks. Though it was not a problem for me but I have found that many applicants struggle to find adequate resources or guidance on how to effectively prepare for the exam.
The biggest challenge for me was the extensive documentation requirements. The process involves gathering and submitting a wide range of documents, including proof of educational qualifications, work experience, and certification. The sheer volume of paperwork can be daunting and time-consuming. Aspiring research analysts may find it difficult to access mentorship or guidance from experienced professionals, which can make the licensing process more isolating and challenging.
With these new rules coming in, I believe there will be more transparency in the documentation required, SEBI’s expectations from RAs and a lower compliance burden probably. The introduction of mandatory registration for anyone receiving payment for research analysis will eliminate any ambiguity about the need for formal recognition.
By requiring all advice and calls to be supported by a research report, the proposed changes ensure that the advice provided by research analysts is well-founded and thoroughly researched. This not only enhances the credibility of the analyst but also builds greater trust with investors, which is beneficial for those entering the field.
For new applicants, these changes seem to offer clearer guidelines, reduced financial and regulatory barriers, and enhanced credibility in their practice. As a result, these individuals can enter the profession with greater confidence, knowing that the regulatory framework supports their growth and protects both their interests and those of their clients.
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Would love to know about this more. Let’s see when these are implemented