Introduction
Investment advisers play a pivotal role in guiding investors through the complex landscape of financial markets. In India, the Securities and Exchange Board of India (SEBI) has laid down specific regulation, SEBI (Investment Advisors) Regulations, 2013 and issued various circulars/guidelines to regulate the conduct of investment advisers. This Regulation and guidelines are aimed at safeguarding the interests of investors, ensuring transparency, and promoting the integrity of the market. This article delves into the key aspects of these Regulation and guidelines and explores their implications for both investment advisers and investors.
Investment Adviser Regulation and Guidelines
In the present era, it becomes utmost important to protect the interest of every stakeholder associated with the security and capital market in order to attract the investors as well as various market intermediaries. Below are certain points that familiar you with the importance of the Regulatory framework of the Investment Advisors in India.
Registration with SEBI
Any person weather individual non-individual has to get registered themselves with SEBI
as an “Investment Advisor” and comply with the eligibility criteria as mentioned in the regulation 6, 7 & 8 of the SEBI (Investment Advisors) Regulations, 2013. Therefore, it is not possible for anyone to become the SEBI Registered investment Advisor so the quality of the advice can not be compromised.
Protection to the investors
Regulation issued by the SEBI with intention to protect the interest of the Investors from the various mala-fide activities. Investment Advisors are required to provide the certain information to the investors to familiar them with the business of the investment advisor, its practices and other general information about the Investment advisor which helps an investor to make an informed decision.
Action in case of non-compliance
SEBI may take the investigation proceedings against the Investment advisor as per the chapter IV and Chapter V of the SEBI (Investment Advisors) Regulations, 2013. SEBI may also initiate action for default as per the SEBI (Intermediaries) Regulations, 2008.
Exemption from registration with SEBI
Regulation 4 of the SEBI (Investment Advisors) Regulations, 2013 deals with the exemption from the registration with SEBI as an Investment Advisor to certain persons which is discussed in detail later in this article
Code of Conduct
Investment Advisors has to comply with the code of conduct as mentioned under the Schedule III of the SEBI (Investment Advisors) Regulations, 2013 which includes Honesty and Fairness with client, Act with due care and diligence, capabilities & adequate resources to provide the services to the client.
Client-Centric Approach
The SEBI (investment Advisor) Regulations, 2013 is a client-centric regulation that aims to protect the investors and promote the development and regulate the securities market. The regulation requires investment advisors to function on a client-centric model with their fee strictly linked to the assets that are under their administration.
Information Gathering
It is mandatory for the investors to provide certain details including the age, income details, investment objectives etc. in order to provide the advise to the client as per his needs and objective of the investment.
Risk Profiling
Investment advisors have to asses the risk profile of the client based on the information received from the client and assess the risk appetite/risk tolerance capacity of the client. Therefore the quality of the investment advise is not compromised and fulfill the requirements of the client.
Fair and reasonable charges
SEBI has issued guidelines for the investment Advisors under section 15A of the SEBI (Investment Advisors) Regulations, 2013 to charge the fees from the clients. Under the same guidelines Investment Advisor can charge fees in Two modes:
- Assets under Advise (AUA)
- Fixed Fee Mode
The maximum fees that may be charged under this mode shall not exceed 2.5 percent of AUA per annum per client across all services offered by Investment Advisor while in the later mode i.e. Fixed Fee Mode, The maximum fees that may be charged under this mode shall not exceed INR 1,25,000 per annum per client across all services offered by Investment Advisors. Therefore the Investment Advisors can not charge fees Arbitrarily from their client, fees charged by them needs to be complied with the guidelines.
Compliance and Conflict Management
The SEBI (Investment Advisors) Regulations, 2013 aim to protect investors from conflicts of interest by requiring investment advisers to comply with a number of requirements. These requirements are designed to ensure that investment advisers act in the best interests of their clients and do not put their own interests ahead of those of their clients.
Avoiding Conflict of Interest
Investment Advisors has to share the Actual or Potential Interest of Investment Advisor weather in various Companies or otherwise which may affect the investment advise given to clients. Therefore client had an idea in which companies the Investment Advisors are interested, Ultimately this helps client to make an informed decision.
Compliance with Regulatory Requirements
SEBI (Investment Advisors) Regulations, 2013 prescribes the various compliance requirement for the SEBI Registered investment Advisors. Chapter III of the Regulation containing Regulation 15 to 22A deals with the General obligations and responsibilities of the Investment Advisors which includes the Responsibility of Investment Advisors, Disclosers of certain information to the Client, Collection of the certain information to the client, Appointment of Compliance officer, Redressal of Client Advice, Maintenance of certain records, Code of Conduct as specified in Third Schedule of the Regulation etc. which needs to be complied with by the Investment advisor.
Qualification and Experience
An Individual Investment Advisor or Principal officer of the Body Corporate who wishes to registered as an Investment advisors needs to comply with the certain qualification as prescribed under the regulation 7 of the 2013 regulations and posses at all time, the necessary certificate from the NISM or other organization or institution including Financial Planning Standards Board of India or any recognized stock exchange in India provided such certification is accredited by NISM. Investment Advisors also needs to Obtain fresh certificate from the prescribed authority before the actual date of the expiry of the certificate.
- Individuals: INR 5 lakhs
- Non-individuals: INR 50 lakhs
The net worth requirement for an SEBI Registered Investment Advisor (RIA) is as follows: The net worth requirement is a measure of the financial stability of the RIA. It is intended to ensure that RIAs have the resources to meet their obligations to their clients and to protect investors from financial losses. The net worth requirement must be maintained at all times. If an RIA’s net worth falls below the required level, they must take steps to increase their net worth or they will be required to cease operations.
The net worth requirement is just one of the eligibility criteria for becoming an SEBI Registered Investment Advisor. Other requirements include:
- Passing the NISM (National Institute of Securities Markets) Investment Adviser Examination
- Having at least five years of experience in the financial services industry
- Submitting a net worth certificate from a chartered accountant
- Maintaining appropriate records
- Complying with all applicable laws and regulations
Exemption from the Registration
SEBI has also given an exemption to certain persons to get registered with SEBI as an Investment Advisors. Regulation 4 of the 2013 regulation deals with the Exemption given to certain persons which are as follows:
- Any person giving general comments on financial trends without specifying securities or investment products
- Any insurance agent or insurance broker who offers investment advice solely in insurance products and is registered with IRDA for such activity
- Any pension advisor who offers investment advice solely on pension products and is registered with PFRDA for such activity
- Any distributor of mutual funds, who is a member of a self regulatory organization recognized by the SEBI or is registered with an association of asset management companies of mutual funds, providing any investment advice to its clients incidental to its primary activity
- Any advocate, solicitor or law firm, who provides investment advice to their clients, incidental to their legal practice
- Any member of ICAI, ICSI, ICMAI, Actuarial Society of India or any other professional body as may be specified by the Board, who provides investment advice to their clients, incidental to his professional service
- Any Stock-Broker or Sub Broker Registered with SEBI under Prescribed regulations.
- Any fund manager, of a mutual fund or alternative investment fund or any other intermediary or entity registered with the SEBI
- Any person who provides investment advice exclusively to clients based out of India
- Any principal officer, persons associated with advice and partner of an investment adviser which is registered under these regulations
Provided that such principal officer, persons associated with advice and partner shall comply with regulation 7 of 2013 regulations.
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Safeguarding Investors A Comprehensive Guide to Sebi (Investment Advisors) Regulation 2013 and Guidelines for Investment Advisers in India (2)
