The Securities and Exchange Board of India (SEBI) has introduced comprehensive updates to the regulatory frameworks governing research analysts (RAs) and investment advisers (IAs). These amendments, effective 16 December 2024, aim to enhance transparency, ensure better compliance and provide clarity in operations. Here, we consolidate the significant provisions applicable to both professionals while highlighting their similarities and unique aspects.
RAs and IAs are now mandated to maintain deposits with their respective supervisory bodies (RAASB for RAs and IAASB for IAs). According to SEB, existing professionals must comply by 30 April 2025 for RAs and 30 June 2025 for IAs. New applicants must meet the deposit requirements immediately. The deposit amount scales with the maximum number of clients handled during the previous financial year:
- Up to 150 clients: Rs1 lakh
- 151 to 300 clients: Rs2 lakh
- 301 to 1,000 clients: Rs5 lakh
- 1,001 and above clients: Rs10 lakh
SEBI allows individuals or partnership firms to register both as RAs and IAs, provided they comply with respective regulatory frameworks. A clear segregation of services is mandatory, supported by an undertaking to maintain an arm’s-length relationship between advisory and research activities.
Both RAs and IAs using AI tools are required to disclose the extent of AI integration to clients. They remain solely accountable for the security, confidentiality, and integrity of client data processed via these tools. Compliance with these AI-related requirements must be achieved by 30 April 2025.
The fee structure for individual and HUF (Hindu undivided family) clients has been standardised across RAs and IAs. For RAs, the maximum permissible fee is Rs1.51 lakh per annum per family and HUF clients in advance but not exceeding one quarter's fees. The ceiling excludes statutory charges and applies solely to research services. This fee limit is subject to revision every three years based on the cost inflation index (CII).
While for IAs, this cap of Rs1.51 lakh per annum (pa) applies under the fixed-fee mode, which is up from previous Rs1.25 lakh pa. IAs can now change the fee mode (fixed or AUA) without adhering to a previous minimum period restriction of a 12-month between changes. For assets under advice (AUA), fees are capped at 2.5% of AUA annually. RAs and IAs are permitted to charge fees in advance, limited to one quarter and must refund unused portions in case of premature service termination.
RAs and IAs must maintain functional websites with specified details for better transparency and accessibility. Confirmation of compliance with this requirement is due by 30 June 2025.
RAs and IAs must ensure segregation of their activities at the client level. Clients availing research or advisory services cannot simultaneously access distribution services within the same group or family entity. This segregation is to be implemented by 30 June 2025.
Annual compliance audits are mandatory for RAs and IAs. Reports must detail adherence to SEBI regulations and any adverse findings should be rectified and published. The deadline for compliance with these additional audit requirements is 31 March 2025. Especially for RAs, SEBI has mandated them to enhance their ‘know-your-customer’ (KYC) procedures and maintain detailed records of all client interactions. These records should include written and signed documents, telephone recordings, emails, SMS messages and any other legally verifiable communication. All records must be retained for a minimum of five years or until the resolution of any disputes, whichever is longer. RAs must ensure full compliance with these record-keeping requirements by 30 June 2025.
Especially for RAs, SEBI has updated the qualification and certification criteria for prospective RA applicants. New RAs are now required to possess a professional qualification or a degree in areas such as finance, economics, or business management, in addition to obtaining NISM certification. Current individual RAs or employees involved in delivering research services are exempt from the new qualification requirements; however, they must maintain their NISM certifications. RAs offering model portfolios must ensure periodic updates and benchmarking against relevant indices. Reports must include disclosures, rationale, methodology and investment horizons. Compliance is mandatory by 30 June 2025. Professionals engaged in unrelated businesses can register as part-time RAs, provided they disclose their other activities and maintain clear segregation. Disclaimers must inform clients that such activities fall outside SEBI’s purview.
IAs can provide financial planning services, including advice on products outside SEBI’s purview. However, they must disclose such engagements and obtain client declarations acknowledging SEBI’s lack of oversight in these cases. Individual IAs exceeding 300 clients or collecting fees above Rs3 crore annually must transition to non-individual registration within three months. They must continue servicing existing clients during this period. IAs offering execution services must maintain records of client consent, including time-stamped communication trails.
SEBI’s updated guidelines for RAs and IAs focus on safeguarding investor interests, fostering transparency and ensuring accountability in the securities market. These changes demand heightened compliance and operational clarity, setting new standards for the advisory and research sectors.
SEBI’s updated regulations for IAs and RAs have ease some restrictions but remain highly onerous with new additional restrictions relating to compliance, fees and disclosure. These will neither achieve the objective of attracting more RAs and IAs commensurate with the rapid increase in retail investor population, nor prevent illegal research and advisory activity.
