SEBI Chief Warns of RIA Decline as Unregulated Finfluencers Gain Ground

The Securities and Exchange Board of India (SEBI) is facing a critical structural challenge: the professionalization of investment advice is failing to keep pace with the explosive growth of retail participation in the Indian equity markets. Chairperson Madhabi Puri Buch recently highlighted a concerning trend where the number of Registered Investment Advisers (RIAs) is stagnating or declining, even as millions of new demat accounts are opened every month. This divergence creates a dangerous 'advice gap' that is increasingly being filled by social media influencers, or 'finfluencers,' who often operate without the regulatory oversight, qualifications, or fiduciary responsibilities required of registered professionals.

At the heart of the issue is a regulatory paradox. To protect investors, SEBI has historically maintained high entry barriers for RIAs, including stringent educational qualifications, experience requirements, and a 'fee-only' model that prohibits receiving commissions from product manufacturers. While these rules were designed to eliminate conflicts of interest, they have inadvertently made the RIA business model economically unviable for many. Small-scale advisors find the compliance costs and capital requirements prohibitive, leading many to either exit the profession or operate under the less-regulated 'Research Analyst' (RA) framework, which allows for different revenue streams but offers less comprehensive financial planning.

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Chairperson Madhabi Puri Buch recently highlighted a concerning trend where the number of Registered Investment Advisers (RIAs) is stagnating or declining, even as millions of new demat accounts are opened every month.

In the absence of affordable, professional advice, retail investors—particularly Gen Z and Millennials—are turning to platforms like YouTube, Instagram, and Telegram. Finfluencers on these platforms often provide high-conviction 'calls' on stocks and options, frequently monetizing their reach through affiliate links, referral bonuses from brokerages, or undisclosed paid promotions. Buch's warning underscores the systemic risk posed by this shift. Unlike RIAs, who are legally bound to act in the client's best interest, finfluencers may be incentivized to encourage frequent trading or promote specific securities to benefit from 'pump and dump' schemes or brokerage commissions.

SEBI is now signaling a shift toward a 'carrot and stick' regulatory approach. The 'carrot' involves a comprehensive review of the RIA regulations to make the profession more attractive. Potential changes include easing the net-worth requirements, broadening the definition of relevant qualifications, and allowing for more flexible fee structures. By lowering the cost of compliance, SEBI hopes to increase the number of registered professionals from the current count of fewer than 1,500 to a level that can realistically service a nation of over 1.4 billion people.