The Securities and Exchange Board of India (SEBI) is gearing up to introduce a series of significant regulatory changes aimed at providing substantial relaxations for registered investment advisors (RIAs).

According to sources familiar with the matter, SEBI is expected to release a consultation paper in July that will propose these changes, which include eliminating the triennial certification requirement, increasing the client cap, and removing experience prerequisites for hiring assistants.

A notable proposal under consideration is the reclassification of individuals who provide stock trading tips.

These individuals will be moved from the RIA category to the "research analyst" license, creating a clear distinction between investment advisors who offer comprehensive, personalized financial solutions and those who give trading tips based on historical trends and other criteria.

"An RIA does not only give investment advice but also works on insurance, taxation, and other important aspects of a client’s financial well-being.

So, they need to be separated from individuals who provide stock tips or run trading courses," said a source close to the discussions.

Sources indicate that SEBI has been engaging with various stakeholders to address the challenges faced by RIAs and explore potential regulatory relaxations.

This follows a statement made by SEBI Chairperson Madhabi Puri Buch last October at a conference organized by the Association of Registered Investment Advisors (ARIA).

During the conference, Buch acknowledged the compliance burden on RIAs and emphasized SEBI’s willingness to co-create regulations with the industry.

"The setting of standards is best done by the industry itself but that needs to be done in consultation with SEBI.

If there is an area where the marginal utility of compliance is low but the cost is high, the industry will ask if this is burningly important.

Eighty percent of the time, it is. But there could be occasions where it is possible to be more flexible," she noted.

Currently, RIAs are required to renew their National Institute of Securities Markets (NISM) certification every three years by passing an exam, a mandate viewed by many as a business continuity risk.

SEBI's forthcoming proposal is expected to abolish this requirement. Additionally, the existing rule that mandates ‘persons associated with investment advice’ (PAIA) to have at least two years of experience is anticipated to be removed.

Lowering the educational requirement for PAIAs from a postgraduate degree to a graduate degree is also being considered, a move expected to facilitate easier hiring.

"This rule poses a huge problem in recruiting talent, particularly for small RIA practices with limited resources," said Suresh Sadagopan, founder and MD of Ladder7 Wealth Planners.

Another significant barrier to business expansion is the current requirement for RIAs to convert into a partnership firm or company once they reach 150 clients.

This transition is often financially burdensome, particularly for new RIAs who tend to have many low-paying clients.

The proposed changes could see this limit doubled to 300 clients or even higher, easing the financial strain on RIAs.

Furthermore, the high net worth requirement for partnership firms and companies, set at Rs 50 lakhs, is another area where RIAs have requested leniency.

Reducing this requirement, along with increasing the client cap, is anticipated to foster growth and expansion within the sector.

By shifting stock tip providers to the "research analyst" category, SEBI aims to relax norms for RIAs while simultaneously imposing stricter regulations on those who offer trading tips.

This dual approach is expected to enhance the regulatory framework, making it more suited to the diverse roles within the financial advisory industry.