The Securities and Exchange Board of India (Sebi) has narrowed the scope of investment advisers (IAs) in terms of the advice they give to their clients.
Recently, Guardian Capital Investment, a Registered Investment Advisor (RIA) had sought informal advice from Sebi on various aspects of client advice. In his response to their letter, Sebi stated that RIAs cannot earn commission by recommending any product, including Fixed Deposits, to their clients.
Along with these investor-centric guidelines, Sebi also mentioned a host of issues for RIAs that focused on business and customer aspects. Read on to find out more.
Two separate customers: Under the new guidelines, an RIA can only offer investment advice services or investment product distribution services, and there must be a clear separation between the two. This will not be a problem for new customers who will now be able to choose whether they need advisory services or distribution services at the time of account opening. RIAs are not permitted to offer distribution and advice to the same client.
Sebi said in the circular, “Existing clients, who wish to avail of advisory services, will not be eligible to avail of distribution services within the IA group/family. Similarly, existing clients who wish to benefiting from the Distribution Services will not be eligible to benefit from the Consulting Services within the IA Group/Family.
RIA fees: Sebi said there could only be two fee collection models. One is Active Under Deliberation (AUA) mode, and the second is Fixed Fee mode. In AUA mode, a maximum of 2.5% AUA per customer per year may be charged. In flat rate mode, a maximum fee of Rs 1.25 lakh per customer per year can be charged.
Audit: The Investment Advice (IA) Regulations were originally issued in 2013 and subsequently amended in 2020. The amended regulations state that the mandatory audit must be completed within six months of the end of the financial year.
That said, if an unfavorable (negative) audit report is delivered by the auditor, the IA will have to send it with any measures (if any) with the necessary approvals in case the IA is a natural person , at Sebi’s office. in the city of AI. This audit report and the explanation of the measures taken must be submitted within one month of the date of the audit report, no later than 31 October.
Live: The required certifications required by an RN were defined in the original RN regulations of 2013. The 2020 amendment granted an exemption to RNs over the age of 50, provided they have a valid certificate from the National Institute of Securities Markets (NISM).
But for an individual investment adviser or a senior manager of a non-individual investment adviser registered as an investment adviser, they must have at least five years’ experience in activities relating to financial product advisory services or securities, funds or assets or portfolio management. For those associated with the investment advisory team, they must have two years’ experience.