Sebi asks banks, NBFCs to separate investment advisory services

Sets networth of Rs 1 lakh for individual investment advisors

Market regulator Securities and Exchange Board of India (Sebi) today said investment advisers who are banks, non-banking financial companies (NBFCs) and corporates will have to segregate investment advisory services from other activities.

Sebi, which today notified Investment Advisers Regulation 2013, has also prescribed a minimum networth of Rs 25 lakh for investment advisers that are corporate bodies and Rs 1 lakh for individuals.

Existing investment advisers will have one year to comply with these capital adequacy requirements. Going ahead any person to be an investment adviser will have to obtain a certificate of registration from Sebi.

Sebi, however, has exempted a few individual, including those who give general advice in good faith, or insurance agents who give investment advice solely on insurance products, pension advisors, advocates, who advice their clients incidental to legal practice, from registration.

An individual registered as an investment adviser will need to have to need to have a professional qualification or post-graduate degree or post graduate diploma in finance, accountancy, business management, commerce, economics, capital market, banking, insurance or actuarial science from a university or an institution recognized by the central government or any state government or a recognised foreign university or institution or association. Or will have to be 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.

Sebi has said, “An investment adviser shall act in a fiduciary capacity towards its clients and shall disclose all conflicts of interests as and when they arise.”

An investment adviser will also have to maintain an “arms-length relationship' between its activities as an investment adviser and other activities. All investments on which investment advice is provided is appropriate to the risk profile of the client. An investment adviser will also have to maintain records of clients Know Your Client (KYC), risk profiling and risk assessment, suitability assessment of the advice being provided, copies of agreements with clients and investment advice provided, whether written or oral.

Meanwhile, Sebi will have the powers to suo motu or upon receipt of information or complaint appoint one or more persons as inspecting authority to undertake inspection of the books of accounts, records and documents relating to investment advisers.