SEBI SEGREGATES INVESTMENT ADVISERS FROM INVESTMENT SELLERS, STATES THEY CANNOT DO BOTH

SEBI has adopted new guidelines for governing the investment advisers and amended Investment Advisers Regulations by setting a tone for reformation which might change the business dynamics for various entities in India. It states that from October 1, 2020, the Individual Advisers can either distribute the investment products or advise on them. It further, restricts the advisers from performing both the investment activities simultaneously. 

As per the SEBI Regulations, any person who advises the clients on sale, purchase, investment or portfolio management in securities for a consideration is known as an ‘investment adviser’. However, a person might be restricted from providing such services unless he obtains a certificate license from the regulator. The amendment, further, aims to strengthen the already existing regulatory framework by making it mandatory for other non-individual investment advisors to introduce their client-level segregation between the advisory and distribution activities. It shall also introduce a revised net-worth criteria for various individuals and corporate persons.

The key changes being introduced by SEBI includes the segregation of services, implementation services, agreement between adviser and client, fees, eligibility criteria and corporatization of investment activities by advisors. As per the new framework prescribed by SEBI, the same client shall not be offered the same kind of services through a non-individual adviser and non-individual advisers must maintain an arm-length relationship with the advisory and distribution functions as rendered by a separate department or division. Further, in order to provide a standard for investment advisory business and improve the quality, SEBI has introduced a mandatory corporatization for individual advisors after they have crossed a threshold of 150 clients. 

Client fees shall also be charged by investment advisers as specified by SEBI, which has not yet been specified by SEBI. This has been capped at 2.5 percent of the assets under advice or a fixed fee of Rs. 75,000 per year across all products and services being provided. SEBI has prohibited usage of terms like ‘wealth adviser’ or ‘independent financial adviser’ by various non-registered investment advisers. Moreover, the individual investment advisers of a corporate investment advisor are now required to have a post-graduate qualification and at least 5 years of advisory work experience. Even employees of a corporate advisory firm are required to have an experience of at least 2 years and a postgraduate qualification.

With regard to the guidelines, SEBI issued a consultation paper in January 2020 on the review of Regulatory Framework for Investment Advisers and had sought comments from the public for the proposal.

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