Daybreak - Why Sebi-registered advisors are now an endangered species

Episode Date: July 1, 2025

Everybody wants to invest, but not everyone knows how. There just aren’t many who can point investors in the right direction.Registered investment advisors, or RIAs—either individuals or corporates licensed by the stock-market regulator—are an endangered species in India. While the country had about 192 million demat accounts as of March 2025, there were only about 941 advisors. That’s one advisor for over 200,000 investors. Pressure much?You’d think the problem goes away if there were more Sebi-registered advisors. If only. In fact, the number of registered advisors in India has been declining over the past few years. Just in 2020, there were over 1,500 of them. The drop was largely attributable to the regulator.Meanwhile, fintechs like ET Money and Value Research are attempting to plug this gap by offering investors automated advice for direct investment. But it's far from a done deal. Tune in. Listen to the latest episode of First Principles feat. Manish Sabharwal of Teamlease here.P.S The Ken’s podcast team is hiring! Here’s what we’re looking for.Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.Listen to the latest episode of Two by Two here

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Ramon Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing and extensive post-production. Sita and I are still reeling from the intensity of our first studio recording.

Intermission launches on March 23rd. To get alert, as soon as we release our first video. episode, please follow intermission on Spotify and Apple Podcasts or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. One of the unexpected outcomes of the pandemic was a sudden nationwide wave of financial prudence. Suddenly, everyone was trying to figure out the best way, not just to save, but more importantly to grow their wealth. And with that explosion of investors across age groups and demographics also came an equally sudden explosion of financial advice. All corners of social media were

inundated with an army of freshly christened fin influencers. It was great for retail investors adopting a more DIY approach. But a couple reels at an online crash course doesn't really cut it for everyone. Some investors want to invest but need a little more. guidance than that. And unfortunately, finding that guidance has become harder than ever. You see, until a couple years ago, people sought out investment advisors, specifically registered investment advisors, aka RIAs. They were typically individuals or corporates with a stamp of approval from Sebi. But down the line, something changed. So, latest data says that there are nearly about 192 million DMAT accounts currently in the country.

But investment advisors, if you put it that way, they are only just above 900. So literally they are like endangered species at this moment. So even if you take like a ratio, it's just like one advisor per about 2 lakh DMAC accounts that you say. That's my colleague Archiejima Ayer. She explained to me how the number of registered investment advisors has been on the decline for quite a few years now.

For context, back in 20, 2020, there were about 1,500 of them. But that was the year everything changed because Sebi stepped in. So Sebi has increasingly put a lot of checks and balances towards how unregistered advisors operate. They were cracking down on them in a systemic manner. But what also happened was that it also made life difficult for licensed registered investment advisors. Like, you know, they were a lot of.

of stringent regulations regarding their minimum net worth, their experience, and even their qualification standards. So the Sebi has tried easing some of these rules, but they haven't been enough for the community to be, you know, for the community to be as active as how it was before. That leaves other investors with two options. Either jump into the deep and blind or approach someone who'd offer any advice even if it comes with a risk of bias. The DIY investing wave that started around the pandemic resulted in more retail investors opting for direct mutual fund plans. These account for nearly 30% of

the industry's total assets under management compared to 21% in 2020. There's no cut for the middleman here and that means better returns for investors. Yet a whole chunk of them continue to invest through regular plans, that is through distributors. Now, both modes come with a fair bit of risk. An ideal situation would be one when investors choose direct plans, either when they're well-informed or well-advised. That is an opportunity that the likes of E.T money, genius and value research are going after. These Vintechs are licensed, offer unbiased investment guidance, and do it all at a much lower cost than a traditional registered advisor. Sounds like a done deal, right? Well, not yet.

Hello and welcome to Daybreak, a business podcast from the Ken. I'm your host, Rahal Philippos and I don't chase the new cycle. Instead, every day of the week, my colleagues, Nikda Sharma and I will come to you with one business story that is worth understanding and worth your time. Today is Tuesday, the 1st of July. Now the thing is, Sebi's concerns about the whole investment advisory business isn't completely unfounded. This is something we've spoken about extensively at the ken. There was a clear quality gap that Sebi recognized and wanted to address. So, so the restrictions started sometime around July to. 2020. That was like nearly five years ago. But one of the main trigger points for that was that,

you know, there were a lot of unscrupleased investment advisors who were giving out unsuitable advice for their clients, essentially. So Indore was being one of those cities where a lot of these businesses, a lot of these investment advisory businesses were being present and most of them being unregistered. So because of that, I think that was one of the main reasons why Sebi had to also sort of raise the bar high for registered investment advisors to come into this profession. While we're on the subject of quality of service being offered by these advisors, consider this.

An expert Al-Chizma spoke to offer a rather concerning statistic. Of the 940-od RIAs, just about half consider the entirety of an investor circumstances and financial position while designing an investment portfolio. So back in 2020, the Sebi had tightened its rules around investment advisory services. The idea was there to keep all of these unscrupulous actors at bay. So some of those changes were like hiking the minimum net worth requirement for an individual RIA to like 5 lakhs from 1 lakh earlier. And also raising their educational qualification criteria to like a minimum postgraduate degree. And besides that, you should also have like five years of work experience and all of that.

So what that unfortunately did was it limited the space for registered advisors to like function. For instance, investment advisors were told to periodically submit reports, including their social media handles and information about the bank accounts and the number of people associated with investment advice. They needed permission from authorities even to publish advertisements, along with a three to six thousand rupees fee. They found their operational costs going up. And as a result of all of that,

many of them took the hard decision to give up their licenses. So essentially they were forced to target the rich. So retail investors like you and me did not really have a, could not really have a chance to approach these RIAs. So the fee structure for an RIA works like, you know, you can either take about 2.5 percentage of the assets under advisory of the client or you can have a fixed fee that could go up to like 1.5 lakh per year and that was for one client.

So I remember I was talking to one of these investment advisors who were saying that the unit economics for an RIA does not really add up because the cost of acquisition of a client and to get them to renew their services and to also like the cost of service that's being there, it is all very high. All of these factors combined are widening the gap between the number of registered advisors and mutual fund distributors.

The numbers are pretty bleak. BSE data shows that in the six months ended September 2024, registered investment advisors collected only about 500 crore rupees in fees from nearly 895,000 active clients. In the six months ended March that year, they'd collected nearly 560 crore rupees with far fewer clients. The bottom line is getting retail investors to pay RIA's fees rather than commissions is just not easy.

Which is why for a long time, advisors had been requesting the rest of the rest of. regulator to relax the rules. And then Sebi complied, at least to a degree. So for a very long time, the advisory community has been asking, has been requesting the regulator to like relax the rules. Sebi has been aware of this. And so from like, you know, late last year, they started easing up the rules.

Like, you know, probably allowing part-time RIAs to come into the job. They also reduced the entry requirements. Like you didn't need to have a postgraduate degree per se. now you could probably have an undergraduate degree and come in. So those were some of the measures that Sebi had come up with. But evidently, even after those, it hasn't been enough for the resurrection of the advisory community per se. As it stands, a chunk of retail investors are still betting on asset classes without proper guidance. The solution could lie with scalable FinTech-led RIAs.

It could be the only viable way for RIAs to scale. and for more retail advisors to get financial advice. Stay tuned. Hi there. Before we move on to the next segment, I quickly wanted to tell you about a super insightful episode of the Ken's premier podcast First Principles, hosted by Rohan Thurma Kumar. Rohan spoke to Manish Sabarwal of Team Lees,

one of India's largest recruitment and human resource providers. Now, what makes it interesting is that because of its sheer size, it is a great barometer for broader. employment trends in India. Let me play you a short excerpt from Rohan's chat with Manish. I think the biggest thing that has happened in Indian entrepreneurship is we have recognized that we are three roles of shareholder, board member and executive are three different roles. And that has suddenly liberated entrepreneurs. What does that mean?

I mean, my role, I'm still the largest shareholder at Teamleys, but I don't run the company on a day-to-day basis. but I'm a board member. Now, as a share all I care is the market gap. As a board member, I have to balance the next quarter and quarter century, right?

And as an individual, as an executive, you have to deliver the quarterly results, but also keep your eye on the long run, right? So, I mean, Jonas Sachs,

he was the inventor of the polio vaccine. He said, the only question to ask yourself is, are you being a good ancestor? That's a really interesting question in today's world, where everybody's attention span has become so short,

everybody's thinking so, so absolutely short term. And nobody really cares about being a good ancestor in some sense on a fiscal policy level, right? If you want to listen to more of this, check out the show notes of this episode for more information. And now, back to Rahil. Pintech-led registered advisories are different from your regular RIAs. So if I have to take with examples, right,

So one, there was E.T. Money is genius. E.T. Money was acquired by 361WAM last year. So what ETMoney genius does is like it lets investors choose between mutual funds, ETF, stocks, or a combination of all of that. At around like, you know, $249 to about $400 a month. So it uses like algorithm-driven systems to assess the client's risk appetite, its financial goals and all of that. And based on all of these parameters, it draws up a plan.

It draws up a financial plan for the client to follow. So just like that, there was another, there's another company called Value Research. It's an, it's a MF advisory firm. And it considers the client's existing investments along with other parameters like, you know, goals, risk appetite, time horizon and all of that. and it draws up a select number of mutual fund schemes for these advisors to, sorry, for these investors to put their money in. So it is like an annual plan where users can pay like 500 bucks per month and then pay $5,000 a year.

These firms typically offer investment advice for direct MF plans. Essentially, what individual RIAs are to the wealthy, these digital advisors could be for novice investors. It could be just what the growing retail investor population needs, advice, but for a reasonable cost. There is a catch here, however. These automated solutions don't necessarily apply to everyone. Speaking to an investment advisor on the same, and what he told me was that probably at the younger stage in life, when you don't really have a lot of responsibilities per se, and when you don't have that much exposure to risk, digital platforms can work. But ideally from digital platforms

you should be you should gravitate a full scale advisory so you know what these platforms do is that they just collect basic information about yourself and just draw up a financial plan based on the parameters based on the information that you've given but over time you will need to

sit down with like an actual investment advisor so that he understands your needs your goals in an in death manner and therefore come up with a financial, we'll therefore come up with the financial plan. So, for more seasoned investors, an unbiased individual RIA is the right choice.

The other thing to consider is that there are limitations pertaining to investment options, meaning creating a well-diversified portfolio. Basically, both the traditional and digital ways of offering investment advice come with their own challenges as well as opportunities. Now, even Sebi has acknowledged that its high barriers have kept people away from making a career out of investment advisory. It recognises that its rules are making it difficult for registered advisors. But while the regulator may continue to ease these rules,

the ultimate push forward has to come from the investors themselves. Daybreak is produced from the Newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters and podcast extras. Head to the ken.com and click on the red subscribe button on the top of the website. Today's episode was hosted by Rahil Filippos, produced by me Snigda Sharma and edited by

Rajiv Sien.