SEBI Issues New Guidelines For Investment Advisors Effective From 30 Sept

On Wednesday, the Securities and Exchange Board of India (SEBI) issued new guidelines for registered investment advisors (RIAs) that will come into force from 30 September.

The latest set of guidelines addresses the gaps on regulations proposed in January and later finalised in July.

Important changes announced to existing rules:

• RIAs are not permitted to offer distribution and advisory services to the same client. This means that existing clients will have to choose between buying securities from the RIAs and taking investment advice. However, they cannot be forced to redeem existing assets under advisory or distribution.
• New clients will be eligible to avail either advisory or distribution services within the group or family of the investment advisor and this option has to be made available at the time of boarding.
• Existing clients who opt to take advisory services will not be eligible for availing distribution services within the group/family of the investment advisor.
• RIAs can charge fees under the fixed fee model or percentage of assets under advice (AuA) model. This needs to be capped at 2.5 percent or Rs 1.25 lakh, depending on whether a percentage or a flat fee is levied.
• Individual RIAs with more than 150 clients will have to corporatize or stop accepting additional clients.
• All RIAs will have to sign investment advisory agreements with clients by 1 April 2021.
• 'Client' as per the new guidelines includes the dependent family of the client. 'Dependent' as per SEBI rules means members whose assets on which the advisory is sought to be provided originate from a single income causing to exclude independently employed spouses.
• RIAs must also comply with the qualification thresholds proposed by SEBI such as post-graduate qualifications in certain subjects and five years of experience (two years for persons associated with investment advice). Exceptions have been made for existing RIAs over the age of 50 with an exception that they require to hold NISM accredited certifications.
• RIAs will have to maintain records of interactions with all clients, including prospective clients, where any conversation related to advice has taken place in the form of SMS or telephonic conversation, among others.