RIAs are registered advisors who have exhibited basic level of competence and skill in investment advisory services. SEBI has of late been fairly perturbed by the breed of advisors who literally survive on giving hot tips to the financial market customers. Most small investors tend to believe these tips as they are easy to understand and simple to execute. In the process, these investors end up investing in stocks and asset classes that are not exactly meant for them. It is in this light SEBI proposes a major re-haul for investment advisors.

Therefore, SEBI wants to make risk profiling central to the entire investment advisory activity. One of the major clauses of the new RIA policy is that all investment advisors have to mandatorily do risk profiling of the client before giving investment recommendations. Risk profiling helps the advisor to dovetail the right class of investments to the risk appetite and the risk capacity of the investor. A 60 year old investor cannot be a candidate for buying a sector fund just as a 25 year old professional would be wasting his risk capacity by investing in liquid funds. Such finer points can be thrown by a detailed risk profiling. Essentially, the new regulations stipulate that RIA will be giving valid advice and investment recommendation only if backed by detailed client profiling.