Investment Advisor
Regulation 2(m) of SEBI (Investment Advisers) Regulations, 2013, defines the expression ‘Investment Advisor’ as any person, who for consideration, is engaged in the business of providing investment advice to clients or other persons or group of persons and includes any person who holds out himself as an investment adviser, by whatever name called.
Investment advice
Regulation 2(l) defines the expression ‘investment advice’ as advice relating to investing in, purchasing, selling or otherwise dealing in securities or investment products, and advice on investment portfolio containing securities or investment products, whether written, oral or through any other means of communication for the benefit of the client and shall include financial planning. The investment advice given through newspaper, magazines, any electronic or broadcasting or telecommunications medium, which is widely available to the public shall not be considered as investment advice for the purpose of these regulations.
Registration
Any person who intends to act as investment adviser, he is to get registration from the Securities and Exchange Board of India (‘Board’ for short). An application for grant of certificate of registration shall be made in Form A and shall be accompanied by a nonrefundable application fee to be paid-
- For individuals Rs.2000/-;
- For body corporate including Limited Liability Partnership - Rs.10000/-
The applicant shall pay the registration fee charges within 15 days from the date of receipt of communication from the Board as detailed below-
- For individuals Rs.3000/-;
- For body corporate including Limited Liability Partnership - Rs.15000/-.
The registration shall be renewed every five years on payment-
- For individuals Rs.1000/-;
- For body corporate including Limited Liability Partnership - Rs. 5000/-.
The fee may be paid by direct credit into the bank account through NEFT/RTGS/IMPS or online payment using the SEBI Payment Gateway or any other mode as may be specified by the Board from time to time. Certificate of registration shall be given in Form B.
Qualification
The following minimum qualifications have been prescribed for an individual investment adviser or a Principal Officer of non individual investment adviser-
- A professional qualification or post-graduate degree or post graduate diploma (minimum two years in duration) in finance, accountancy, business management, commerce, economics, capital market, banking, insurance or actuarial science from a university or an institution recognized by the Central Government or any State Government or a recognized foreign university or institution or association or a professional qualification by completing a Post Graduate Program in the Securities Market (Investment Advisory) from NISM of a duration not less than 1 year or a professional qualification by obtaining a CFA Charter from the CFA Institute;
- An experience of at least five years in activities relating to advice in financial products or securities or fund or asset or portfolio management.
Exemption from registration
The following persons shall not be required to seek registration subject to the fulfillment of the conditions stipulated therefor,-
- Any person who gives general comments in good faith in regard to trends in the financial or securities market or the economic situation where such comments do not specify any particular securities or investment product;
- Any insurance agent or insurance broker who offers investment advice solely in insurance products and is registered with Insurance Regulatory and Development Authority for such activity;
- Any pension advisor who offers investment advice solely on pension products and is registered with Pension Fund Regulatory and Development Authority for such activity;
- Any distributor of mutual funds, who is a member of a self regulatory organization recognized by the Board 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 Institute of Chartered Accountants of India, Institute of Company Secretaries of India, Institute of Cost and Works Accountants of India, 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 under SEBI (Stock Broker and Sub- Broker) Regulations, 1992, portfolio manager registered under SEBI (Portfolio Managers) Regulations, 1993 or merchant banker registered under SEBI (Merchant Bankers) Regulations, 1992, who provides any investment advice to its clients incidental to their primary activity;
- Any fund manager, by whatever name called of a mutual fund, alternative investment fund or any other intermediary or entity registered with the Board;
- 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;
- Any other person as may be specified by the Board.
Procedure
The Board may require the applicant to furnish further information or clarification regarding matters relevant to investment advisory services for the purpose of consideration of the application for registration. The applicant or his authorized representative, if so required, shall appear before the Board for personal representation. The Board shall take into account the following while considering the application for registration-
- whether the applicant is an individual or a non-individual?
- whether the applicant as an individual or a body corporate or a firm or an Limited Liability Partnership, the Principal Officer of the same is qualified for registration?
- whether the applicant fulfills the networth requirement-
- individual - Rs. 5 lakh;
- non individuals - Rs. 50 lakhs?
- whether the applicant, its partners, principal officer and persons associated with investment advice, if any, are fit and proper persons?
- whether the applicant has the necessary infrastructure to effectively discharge the activities of an investment adviser?
The Board on being satisfied that the applicant complies with the requirements shall send intimation to the applicant and on receipt of the payment of registration fees grant certificate of registration in Form B, subject to such terms and conditions as the Board may deem fit and appropriate.
Validity of certificate
The certificate of registration granted shall be valid till it is suspended or cancelled by the Board.
Refusal of registration
After considering an application if the Board is of the opinion that a certificate should not be granted to the applicant, it may reject the application after giving the applicant a reasonable opportunity of being heard. The decision of the Board to reject the application shall be communicated to the applicant within 30 days of such decision.
Conditions of certificate
The certificate granted shall be subject to the following conditions-
- the investment adviser shall abide by the provisions of the Act and these regulations;
- the investment adviser shall forthwith inform the Board in writing, if any information or particulars previously submitted to the Board are found to be false or misleading in any material particular or if there is any material change in the information already submitted;
- the investment adviser, not being an individual, shall include the words ‘investment adviser’ in its name;
- individuals registered as investment advisers shall use the term ‘investment adviser’ in all their correspondences with their clients;
- individuals registered as investment advisers whose number of clients exceed 150 in total, shall apply for registration as non-individual investment adviser within such time as may be specified by the Board.
Obligations and responsibilities-
The Investment Adviser shall-
- act in a fiduciary capacity towards its clients and shall disclose all conflicts of interests as and when they arise;
- not receive any consideration by way of remuneration or compensation or in any other form from any person other than the client being advised, in respect of the underlying products or securities for which advice is provided;
- maintain an arms-length relationship between its activities as an investment adviser and other activities;
- ensure that its investment advisory services are clearly segregated from all its other activities, in the manner as prescribed hereunder;
- ensure that in case of any conflict of interest of the investment advisory activities with other activities, such conflict of interest shall be disclosed to the client;
- not divulge any confidential information about its client, which has come to its knowledge, without taking prior permission of its clients, except where such disclosures are required to be made in compliance with any law for the time being in force;
- not enter into transactions on its own account which is contrary to its advice given to clients for a period of fifteen days from the day of such advice;
- follow Know Your Client procedure as specified by the Board from time to time;
- abide by Code of Conduct as specified in Third Schedule;
- not act on its own account, knowingly to sell securities or investment products to or purchase securities or investment product from a client;
- furnish to the Board information and reports as may be specified by the Board from time to time;
- ensure that All investments on which investment advice is provided is appropriate to the risk profile of the client.
Code of conduct
- An investment adviser shall act honestly, fairly and in the best interests of its clients and in the integrity of the market.
- An investment adviser shall act with due skill, care and diligence in the best interests of its clients and shall ensure that its advice is offered after thorough analysis and taking into account available alternatives.
- An investment adviser shall have and employ effectively appropriate resources and procedures which are needed for the efficient performance of its business activities.
- An investment adviser shall seek from its clients, information about their financial situation, investment experience and investment objectives relevant to the services to be provided and maintain confidentiality of such information.
- An investment adviser shall make adequate disclosures of relevant material information while dealing with its clients.
- An investment adviser advising a client may charge fees, subject to any ceiling as may be specified by the Board. The investment adviser shall ensure that fees charged to the clients are fair and reasonable.
- An investment adviser shall try to avoid conflicts of interest as far as possible and when they cannot be avoided, it shall ensure that appropriate disclosures are made to the clients and that the clients are fairly treated.
- An investment adviser including its partners, principal officer and persons associated with investment advice shall comply with all regulatory requirements applicable to the conduct of its business activities so as to promote the best interests of clients and the integrity of the market.
- The senior management of a body corporate which is registered as investment adviser shall bear primary responsibility for ensuring the maintenance of appropriate standards of conduct and adherence to proper procedures by the body corporate.
Disclosure to clients
An investment adviser shall disclose to the client-
- its holding or position, if any, in the financial products or securities which are subject matter of advice;
- any actual or potential conflicts of interest arising from any connection to or association with any issuer of products/ securities, including any material information or facts that might compromise its objectivity or independence in the carrying on of investment advisory services;
- of all material facts relating to the key features of the products or securities, particularly, performance track record.
Maintenance of records
An investment adviser shall maintain the following records-
- Know Your Client records of the client;
- Risk profiling and risk assessment of the client;
- Suitability assessment of the advice being provided;
- Copies of agreements with clients, incorporating the terms and conditions as may be specified by the Board
- Investment advice provided, whether written or oral;
- Rationale for arriving at investment advice, duly signed and dated;
- A register or record containing list of the clients, the date of advice, nature of the advice, the products/securities in which advice was rendered and fee, if any charged for such advice.
All records shall be maintained either in physical or electronic form and preserved for a minimum period of 5 years.
Audit
An investment adviser shall conduct yearly audit in respect of compliance with these regulations from a member of Institute of Chartered Accountants of India or Institute of Company Secretaries of India and submit a report of the same as may be specified by the Board.
Compliance Officer
An investment adviser which is a body corporate or a partnership firm shall appoint a compliance officer who shall be responsible for monitoring the compliance by the investment adviser in respect of the requirements of the Act, regulations, notifications, guidelines, instructions issued by the Board.
Redressal of grievances
An investment adviser shall redress client grievances promptly and have adequate procedure for expeditious grievance redressal. Any dispute between the investment adviser and his client shall be submitted to a dispute resolution mechanism that includes mediation and/or conciliation and/or arbitration in accordance with the procedure specified by the Board] or through Ombudsman authorized or appointed for the purpose by any regulatory authority, as applicable.
Implementation service
Investment adviser may provide implementation services to the advisory only through direct schemes/products in the securities market. No fee shall be levied from the client for implementation service by the Investment Adviser. The client is not under an obligation to avail implementation services of the Investment Adviser.
Inspection by Board
The Board may suo motu or upon receipt of information or complaint appoints one or more persons as inspecting authority to undertake inspection of the books of accounts, records and documents relating to investment advisers. Before ordering an inspection, the Board shall give not less than 10 days notice to the investment adviser.
The Investment Adviser is under an obligation to produce to the inspecting authority such books, accounts and other documents in his custody or control and furnish him with such statements and information as the inspecting authority may require for the purposes of inspection. They have to give such assistance and shall extend all such co-operation as may be required in connection with the inspection and shall furnish such information as sought by the inspecting authority in connection with the inspection.
The inspecting authority shall, as soon as possible, on completion of the inspection submit an inspection report to the Board. The Board may after consideration of the inspection report and after giving reasonable opportunity of hearing to the investment advisers or its authorized representatives, issue such directions as it deems fit in the interest of securities market or the investors including,-
- requiring an investment adviser, partners, directors, principal officer and persons associated with investment advice not to provide investment advice for a particular period;
- requiring the investment adviser to refund any money collected as fees, charges or commissions or otherwise to the concerned clients along with the requisite interest;
- prohibiting the investment adviser, partners, directors, principal officer and persons associated with investment advice from operating in the capital market or accessing the capital market for a specified period.
Liability
An investment adviser who-
- contravenes any of the provisions of the Act or any regulations or circulars issued there under;
- fails to furnish any information relating to its activity as an investment adviser as required by the Board;
- furnishes to the Board information which is false or misleading in any material particular;
- does not submit periodic returns or reports as required by the Board;
- does not co-operate in any enquiry, inspection or investigation conducted by the Board;
- fails to resolve the complaints of investors or fails to give a satisfactory reply to the Board in this behalf,
shall be dealt with in the manner provided under the Securities and Exchange Board of India (Intermediaries) Regulations, 2008.
