Dummy’s Guide to SEBI Investment Advisers Regulations 2013 - Network FP
March 27, 2014

Dummy’s Guide to SEBI Investment Advisers Regulations 2013

Deepak Jain

The Securities and Exchange Board of India (SEBI) came out with the Investment Advisers Regulations 2013 in January 21, 2013. These regulations came into force from April 21, 2013. Below is a comprehensive guide to understanding the regulations which affects the financial advisors in India.

Download the Original Copy of Regulations Released

 

THE REGULATION

According to the SEBI Investment Advisers Regulations 2013 any person acting as an Investment Adviser needs to register themselves with SEBI.

Following are certain aspects of the regulations;

1. What is Investment Advice?

Investment Advice is defined as any advice relating to Investing, Purchasing, Selling, Dealing of Securities or Investment Products. This covers advice rendered orally or written or through any means of communication and includes financial planning advise.

2.    What is NOT “Investment Advice”?

Investment Advice given through Mass Media Electronic or Print to general public is not “Investment Advice”.

3. Who is an “Investment Adviser”?

Any person who for consideration is engaged in the business of providing “investment advice” to clients whether Individual Clients, Group of Clients or any Person or calls himself as Investment Adviser whatever the constitution of the Person may be.

4. Who is NOT an “Investment Adviser”?

  1. Any person who gives general advice on trends in the market and does not specify a particular security or investment.
  2. Any Insurance Agent who advises on Insurance Products and is registered by IRDA
  3. Any Pension Adviser who offers advice on Pension Products only and is registered with PFRDA.
  4. Any Mutual Fund Distributor who is a member of a SEBI approved SRO or is registered with an Association of AMC’s and gives advice on Mutual Funds.
  5. Any Advocate who provides investment advice regarding legalities of investments.
  6. Any Chartered Accountant, Cost Accountant, Company Secretary, Actuary who provides investment advice specific to their profession.
  7. Any Stock Broker or Sub Broker registered with SEBI under Stock Broker & Sub Broker Regulations, 1992, Portfolio Managers registered under SEBI (Portfolio Managers) Regulations 1992 who provide investment advice related to their profession.
  8. Any Fund Manager of a Mutual Fund or Alternate Investment Fund or any Intermediary registered with SEBI.
  9. Any person providing Investment Advice to Clients exclusively outside India provided they are not Persons of Indian Origin or Non- Resident Indians.
  10. Any representative and partner of an Investment Adviser who is registered under these regulations.

THE REQUIREMENTS

A.   Educational Requirements:

There are two sets of Educational Requirements and the applicant needs to fulfill both of them:

1. Basic Minimum Qualification:

Needs to have one of the Following Post Graduate Qualification:

  1. Professional Qualification
  2. Post Graduate Degree
  3. Post Graduate Diploma

In the Following:

  1. Finance
  2. Accountancy
  3. Business Management
  4. Commerce
  5. Economics
  6. Capital Market
  7. Banking
  8. Insurance
  9. Actuarial Science

Recognized by the Central Govt., State Govt.

Recognized Foreign University, Foreign Institution & Association.

OR

A Graduate in any discipline with an experience of at least five years in activities relating to advice in financial products or securities or fund or asset or portfolio management.

2. Compulsory Qualification

The Investment Adviser, Partners and Representatives of Investment Advisers need to clear either:

1. NISM Certifications: Investment Adviser Certification Examination-1 (IACE-1) and Investment Adviser Certification Examination -2 (IACE-2)

OR

2.   Any Certification Accredited by NISM – like Chartered Wealth Manager (CWM) or Certified Financial Planner (CFP)

The investment advisers seeking to register under these regulations need to ensure that their partners and representatives obtain the above certifications within 2 years of Date of Commencement of these regulations i.e. by 21st of April 2015.

B.   Capital Adequacy Requirements

Body Corporates: Private or Public Limited Net Worth of at least 25 Lacs.

Individual or Partnership: Net Worth of Rs. 1 Lac.

PROCEDURE OF REGISTRATION

A.  How to  Apply

  1. The Applicant for grant of registration as an Investment Adviser under SEBI Investment Advisers Regulations, 2013 should make an application to SEBI in “Form A” as provided in the Regulations along with all the necessary supporting documents.
  2. Generally on receipt of Application, the applicant will receive a reply from SEBI within one month. However, the time taken for registration depends on how the applicant fulfills all the registration requirements and provides the complete information in all respects.
  3. The applicant is advised to go through the SEBI Investment Advisers Regulations, 2013 for checking the eligibility criteria and such other details which may help expedite the registration process.
  4. The applicant must mention the following in the covering letter:
    a. Whether the applicant is providing investment advisory services prior to these Regulations. If yes, provide details.
    b. Details of the investment advice provided prior to such application.
    c. It is applying for registration of as a new Investment Adviser providing investment advisory services.

5. As an integral part of the registration process, the applicant will submit the following

    1. Form A appropriately filled, numbered, duly signed and stamped.
    2. Application fees of Rs. 5,000/- by way of bank draft in favour of “The Securities and Exchange Board of India”, payable at Mumbai.

6. The applicant shall also make an online application in terms of the guidelines as prescribed by SEBI from time to time.

B.   Grant of  Certification of Registration

Within one month the applicant receives a reply from SEBI informing on Approval or Dis Approval of Certification.

On Receipt of approval the Applicant needs to pay the following fees:

  1. Body Corporate              : Rs. 1,00,000 (Rs. One Lac)
  2. Individual or Partner      : Rs. 10,000 (Rs. Ten thousand )

The applicant is Granted certification as per the Format provided as Form B.

C.   Documents to be attached along with the From A (Application Form)

Self attested copy of the following documents

1. Individual:

  1. Post Graduate Qualification OR Graduate Qualification + 5 Years’ Experience Proof
  2. Copy of the Certification obtained as per Section 7(2) like NISM IACE, Chartered Wealth Manager® Certification or Other Certifications.
  3. Number of Employees of Applicant who will render the Advice on his behalf and their Qualification Proof as mentioned in points a, b and c.
  4. ID Proof and Address Proof of Applicant
  5. Details of any business interest of the applicant in any company or firm as partner or director.
  6. Copy of ITR or From 16 for the Last 3 Financial Years.
  7. Copy of assets and liabilities statement and certification of net tangible assets certified by a chartered accountant (not more than six months old at the time of filing of application). Please note that membership number of the Chartered accountant must be included in the certificate.

2.    Partnership:

  1. Names and Ownership Structure of the Firm
  2. ID Proof and Address Proof of the Partners
  3. Educational Qualification Proof of each Partner
  4. Copy of the Certification obtained as per Section 7(2) like NISM IACE Certification, Chartered Wealth Manager® or Other Certifications for each partner.
  5. Declaration that the aforesaid partners shall obtain fresh certification before expiry of the validity of the existing certification to ensure continuity in compliance with certification requirements.
  6. Copy of assets and liabilities statement and certification of net tangible assets of the partnership firm certified by a chartered accountant (not more than six months old at the time of filing of application). Please note that membership number of the chartered accountant must be included in the certificate.

3.    Body Corporate:

  1. Shareholding Pattern
  2. Profile of Directors
  3. ID Proof and Address Proof of Directors
  4. Declaration of Compliance with Educational and Qualification Requirements by the representatives.
  5. List of Associated Companies registered with SEBI, RBI, IRDA or PFRDA with Registration Number.
  6. If applicant is a bank or NBFC, then copy of approval from RBI for undertaking investment advisory services.
  7. Net worth certificate by a chartered accountant, not more than six months old. Please note that membership number of the chartered accountant must be included in the certificate.

Additional Documents
In addition to the above documents as per the constitution of the applicant the following documents need to be provided by all applicants irrespective of their constitution.

  1. Business Plan
  2. Details of Infrastructure
  3. Execution Services: i.e. if the applicant has an advise execution service or product distribution service that is offers or intends to offer to its clients. The applicant need to give a declaration that the execution service is offered through and different department or division than the advisory service.

SEBI - Flow Chart (1)

POST REGISTRATION COMPLIANCE

The SEBI Investment Advisers Regulations Places some very important compliance requirements on the Investment Adviser Registered under this Act. The basic motive of these compliance is to regulate the quality of the advice and to protect the interest of the clients availing services of the “Investment Adviser”.

Code of Conduct of the Investment Adviser

As per Clause 15 (9) the Investment Adviser must follow the following Code of Conduct:

1.   Honesty and fairness: An investment adviser shall act honestly, fairly and in the best interests of its clients and in the integrity of the market.

2.   Diligence:  An investment adviser shall act with due skill, care and diligence in the best interests of its clients and shall ensure that its advice is offered after thorough analysis and taking into account available alternatives.

3.   Capabilities:  An investment adviser shall have and employ effectively appropriate resources and procedures which are needed for the efficient performance of its business activities.

4.   Information about clients: An investment adviser shall seek from its clients, information about their financial situation, investment experience and investment objectives relevant to the services to be provided and maintain confidentiality of such information.

5.   Information to its clients: An investment adviser shall make adequate disclosures of relevant material information while dealing with its clients.

6.   Fair and reasonable charges: An investment adviser advising a client may charge fees, subject to any ceiling as may be specified by the Board, if any. The investment adviser shall ensure that fees charged to the clients is fair and reasonable.

7.   Conflicts of interest: An investment adviser shall try to avoid conflicts of interest as far as possible and when they cannot be avoided, it shall ensure that appropriate disclosures are made to the clients and that the clients are fairly treated.

8.   Compliance: An investment adviser including its representative(s) shall comply with all regulatory requirements applicable to the conduct of its business activities so as to promote the best interests of clients and the integrity of the market.

9.   Responsibility of senior management: The senior management of a body corporate which is registered as investment adviser shall bear primary responsibility for ensuring the maintenance of appropriate standards of conduct and adherence to proper procedures by the body corporate.

Responsibilities of Investment Adviser

Some of the Important Provisions are:

  1. Must act in Fiduciary Capacity and disclose all Conflicts of Interest to the Client.
  2. An investment adviser shall not receive any consideration by way of remuneration or compensation or in any other form from any person other than the client being advised, in respect of the underlying products or securities for which advice is provided.
  3. An investment adviser shall follow Know Your Client procedure as specified by the Board from time to time.
  4. Do proper Risk Profiling of the client and advice accordingly
  5. Ensure suitability of advice
  6. Maintain proper records as per the guidelines
  7. Put in place a proper client grievance redressal system
  8. Once registered, the IA must comply with the reporting requirements as specified by SEBI from time to time.
  9. The IA must regularly check the SEBI website for any updation / circulars/ guidelines issued from SEBI from time to time with respect to the IA.
  10. The IA must intimate to SEBI any material change in the details already furnished to SEBI within a reasonable period of time.

Should You Register Under these Regulations?: If you are an Investment Adviser who gives Investment Advice for Consideration (Fee based Advisory Model) then you are required to register under these regulations. If you are only financial product seller then you need not register under these regulations. If you are a company offering both fee based advise as well as earn commission on Financial Products you will need to effectively separate your both the businesses i.e. maintain an arms-length between your advisory and product selling business and register the advisory business under these regulations.

SEBI Investment Advisers Regulations 2013 are an important step towards regulating Investment Advise in India. This would make Investment Advisers more accountable for the advice they give to their clients creating Financial Doctors and also by registering under these regulations the Investment Adviser gets much needed credibility professionally. 

 

Authored by,

Deepak Jain, CWM

Country Head Knowledge Management India and SAARC
American Academy of Financial Management, India
Delhi

14 Thoughts to “Dummy’s Guide to SEBI Investment Advisers Regulations 2013”

  1. abbasali mava says:

    Deepakji, Very informative article, Is there any renewal fee in SEBI Investment Advisor regulation ? and CFP is also another option one can select instead of sebi RIA?

  2. Deepak Jain says:

    Yes the Registration is valid for 5 years and then it needs to be renewed. The renewal fees is Rs. 10000 for Individuals and firms and Rs. 100000 for corporates.

  3. Deepak Jain says:

    As per your question regarding the CFP as alternative certification. All CFP who are granted the certification till 28th of March 2014 can register on the Basis of CFP but any CFP after 28th March 2014 have the option to either Clear the NISM IACE Exams level 1 and 2 or Chartered Wealth Manager certification from AAFM.

  4. Deepak… thank for the excellent flowchart. Congratulations for getting CWM accredited with NISM as eligible qualification.

    There are two things I would like to bring to you and other readers notice as per my understanding;

    1. NISM Director informed me that even CFP has applied for accreditation. So any CFP Certficant whenever passed will be eligible for the applying for RIA.

    2. In the flowchart… it mentions if you are exempt you don’t have to apply… However exemptions should be read along with inclusions…. so if somebody is doing multi asset and multi products advisory… he or she still will still have to come under the regulations.

    SEBI is not strictly enforcing these regulations as of now… but all advisors should try and adhere to it at least in spirit even if not applied.

  5. Hi Deepak Sir ,thank you for the valuable information , i need to know people who had cleared all CFPs Exam before 28/3/2014 but had not applied for the certificate till 28/03/2014 . Do they had to also do some other certification to register as RIA.

  6. Your hours will vary depending on your company. As a financial adviser at a high street bank, you will generally
    work normal office hours with some Saturday mornings.

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  8. Sandip chauhan says:

    Hello guys
    I am sandip
    I hve following degrees and certicate
    Do u need to registered under sebi separately
    My qualification is
    Bcom LLB LLM (business law)
    cfp
    irda-ic33 insurance agent
    Mutual advisor arn code nism
    gi ic34 general insurance

  9. Sandip chauhan says:

    Hello guys
    I am sandip
    I hve following degrees and certificate
    Do i need to registered under sebi separately
    My qualification is
    Bcom LLB LLM (business law)
    cfp
    irda-ic33 insurance agent
    Mutual advisor arn code nism
    gi ic34 general insurance
    Reply

  10. imran says:

    I m a doctor but have passed NISM -1 & 2 Exams , can I get the IA Certification without any experience .

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  12. intelivisto says:

    Get study material and practice question paper for NISM mock test

  13. Is compliance required under IA Regulations where the Registered Investment Adviser gives advice to Indian investors for investing in US securities.

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