Accordingly, it has been made mandatory for those engaged as investment advisors to obtain a certificate of registration from SEBI. This certificate will be valid for 5 years from the date of issue. Investment advisors are also required to have certain minimum qualifications and experience in the financial services space. A certification on financial planning has also been made mandatory. The investment advisor, along with all his partners will need to comply with the required certifications within 2 years from these SEBI regulations.
The capital markets regulator has specified that the networth of companies engaged in investment advisory should be more than Rs. 25 lakh. This number reads as Rs. 1 lakh for partnership firms in this business and for individual investment advisors. SEBI has also specified maintenance of certain records, which shall be subject to annual audits.
In addition to the qualifications and capital adequacy requirements, SEBI has directed investment advisors to disclose all material information of themselves/their firms to clients before engaging the client. It is also mandatory to disclose any consideration received by the investment advisor for any product or service in respect of which investment advice is given, details of disciplinary actions taken against them in the past and association with other intermediaries. Proper risk profiling of the client should be done by the investment advisor, and such risk profiling should be communicated to the investor after the completion of the assessment. Banks, NBFCs and companies offering distribution services which are also investment advisors are required to keep their investment advisory services different from such activities.
Who is exempt from these regulations?
There are several entities which have been exempt from these regulations. These include any person who gives general comments where such comments do not specify any particular investment product, any IRDA registered insurance agent or broker, any pension advisor registered with PFRDA, registered distributors of mutual funds, any advocate, solicitor or law firm, who provides investment advice to their clients, incidental to their legal practise, 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 such body, any stock broker or sub-broker registered under SEBI, portfolio manager registered under SEBI or merchant banker registered under SEBI, any fund manager of a mutual fund, alternative investment fund or any other intermediary or entity registered with SEBI and any person who provides investment advice exclusively to clients based outside India.
How are you affected as an investor?
This step by SEBI is definitely positive for investors, who can now expect improved quality of service and advice from investment advisors, on the back of their increased accountability and responsibility. Investors have these guidelines to fall back upon and check if their advisor has abided by the regulations. This becomes even more relevant in case of a legal proceeding against the advisor. The business of investment advisory is set to become more responsible, as more confidence is shown in the minds of investors. At GettingYouRich.com we remain committed to comply with and support such regulations.
Click here to read the regulations by SEBI. #gettingyourich