Why SEBI Must Remove "Financial Planning" from Investment Adviser Regulations

By Sadique Neelgund, Founder, Network FP

Recently, SEBI made another round of changes to the Registered Investment Advisor (RIA) Regulations. Entry barriers have been further relaxed, advisors can now offer second opinion services, and RIAs are now allowed to showcase the past performance of their portfolios. While these reforms aim to boost the advisory profession, the inclusion of portfolio performance disclosures prompted me to write this piece.

What exactly is the role of a Registered Investment Adviser (RIA)? If portfolio performance is an expected deliverable from RIAs, then why is "Financial Planning" included in the scope of investment advisory services? While SEBI's intent and efforts to protect investors are commendable, this needs a thorough review.

Why RIA numbers may remain low

Despite 12 years of regulations and consistent reforms, RIA numbers have steadily declined from a peak of ~1,350 to ~950 today as per SEBI listing. Of these, only a few hundred actively engage in financial planning services catering to high net-worth clients.

High compliance efforts, unwillingness of investors to pay separately, and lack of clarity on scope have made existing ones exit and discouraged new entrants. Unless structural issues are addressed, RIA numbers are unlikely to rise meaningfully.

Why it's hurting consumers

The biggest losers are consumers & investors. Families across India want help with budgeting, debt management, insurance coverage, retirement planning, tax planning, life planning, and behavioural coaching. Yet many qualified professionals like CFPs & QPFPs hesitate to use the title "financial planner" or offer financial planning services because that could be construed as "investment advice" under SEBI regulations. Investors are left with product-related assistance from distributors, while RIAs remain few, metro-centric, and focused on high-net-worth clients.

Millions of households, therefore, lack access to affordable, holistic financial planning.

Legacy problem – how it started

This confusion dates back to 2007-2008, when a leading financial planning body (where I was then employed) introduced the concept of "financial planning" and "fee-only advisory" into India's regulatory debate. SEBI, eager to promote fiduciary advice, absorbed these terms into its definition of investment advice while launching the regulations in 2013. While well-intentioned, the drafting created regulatory overreach. Financial planning was folded into a framework meant for securities regulation, even though planning extends far beyond securities.

Financial planning and investment advisory are different

The distinction is fundamental. Financial planning is holistic; it includes overall budgeting, insurance planning, debt management, investment planning, retirement planning, tax planning, goal planning and more, many of which lie outside SEBI's purview. Investment advisory, on the other hand, is specific - it involves recommending and advising on investment products. Planning is multidisciplinary and may or may not involve investment products. By combining the two, SEBI has blurred the boundaries, created compliance burdens, and confused both consumers and professionals.

Separate financial planning from investment advisory

For both financial planning and investment advisory to flourish together and ensure millions of investors benefit from both, SEBI must consider the following two changes:

1) Clearly Define Investment Advisory Scope - The RIA license should be confined to those professionals who want to offer "Direct Stocks and Direct Plans of SEBI regulated investment products like MF, PMS, AIF, SIF for a Fee". This clarity is currently missing. A watertight definition helps investors, professionals, regulators and the entire ecosystem.

2) Set Free Financial Planning Services - Today, other professionals, including mutual financial distributors (around two lakhs), far outnumber RIAs, and this is most likely to remain this way for India. They should be proactively encouraged to provide holistic financial planning solutions as part of incidental advice without being forced into RIA registration. For this, SEBI must remove the words' financial planning', 'financial planner' & 'financial plan' from advisor regulations.

The ultimate beneficiaries – Investors

With this separation, more professionals, including mutual fund distributors, can freely and confidently offer financial planning services. This will ensure investors at large get access to affordable & holistic planning services and also get greater value from financial distributors.

As investors grow and distributors mature, they will naturally consider getting RIA license to offer direct plans and charge fees, growing the RIA pool organically. Ultimately, investors benefit most: they no longer need to wait for RIA numbers to rise to access quality, holistic guidance. SEBI now has the opportunity to set things right, so that future generations of consumers don't continue to suffer.

(Disclaimer: Views expressed are the author's own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)