All investment advisers would need to register with SEBI after payment of required application and registration fees
New Delhi: With an aim to crack its whip on investment advisers possibly indulging in unfair trade practices, market regulator Securities and Exchange Board of India (SEBI) is putting in place strict norms for them, including putting a ceiling on fees charged by them, reports PTI.
All investment advisers would need to register with SEBI after payment of required application and registration fees, while the market regulator eventually wants them to be regulated through a self regulatory organisation (SRO) model.
While the proposals have been approved by SEBI's board, they could be soon notified by the market regulator, a senior regulatory official said.
As per the proposed norms, the investment advisers would be under strict vigil for any front-running, a phrase used in market parlance for trading in stocks based on prior information about trades to be conducted by a fund manager.
The regulations follow several instances of certain equity research and investment advisory entities, including some overseas firms, issuing negative reports about Indian stocks and they have been accused of unfairly influencing the share prices and charging huge fees for sharing their reports.
To address any conflict of interest, investment advisers would be required to segregate their other businesses from their activity as an investment adviser and disclose all commission and rewards that they receive from their clients.
Also, investment advisers may charge fees subject to the ceiling specified by SEBI.
They would also have to disclose conflicts of interest arising from any association with a product provider, including any material facts that might compromise its objectivity or independence in carrying investment advisory services.
The investment advisers would also have to disclose to the investor its holding or position, if any, in the financial product which is subject matter of recommendation.
If any conflicts of interest cannot be avoided, the investment advisers would have to ensure that its clients are fairly treated and they would be barred from divulging any confidential information about their clients.
They would also have to abide by a code of conduct and conduct risks profiling and risk assessment of the investor.
Besides, they would be required to maintain written records relating to investment advisory services for a period of five years and conduct yearly audit in respect of compliance with regulation.
Also, they cannot employ any device or scheme to defraud any client or prospective client.
Those aspiring to become an investment adviser would need to have an experience of at least five years in activities relating to advice in financial products or fund or asset or portfolio management, besides other educations qualifications.
The investment advisers would need a certification on Financial Planning or fund or asset management or investment adviser or any such certification, while existing investment advisers will be given two years time for such certification.
Investment advisers who are body corporate shall have a net-worth of not less than Rs25 lakh, while individuals or partnership firms shall have net tangible assets of not less than Rs5 lakh.
A body corporate offering investment advisory services shall ensure that such activity is segregated from other activities through a separately identifiable department.
Also, advice exclusively on non-securities market which is regulated by sectoral regulators would be outside the scope of SEBI regulations. Advice on the portfolio which contains securities or investment products, however, shall be covered.
The SEBI norms would also cover the financial planning service, while representatives of investment adviser which are body corporate and the fund managers who are employees or advisers of mutual funds or asset management company or alternative investment funds are also required to register.
A bank which has been permitted by RBI to undertake investment advisory services through a subsidiary or a separate division, would need to seek SEBI registration.
Those exempted from the purview of SEBI regulation include a person giving general comments in good faith in regard to trends in the financial or securities market or the economic situation and where such comments do not specify any particular securities or investment product.
Investment advice given without any consideration through newspaper or other media forum widely available to the public would also be exempted, while the exemption would also apply to any insurance agent, broker, pension advisers, mutual fund distributors, advocates, solicitors, law firms, chartered accountants, portfolio managers and merchant bankers.