investment advisors regulations 2013
TRANSCRIPT
SEBI (Investment Advisers) Regulations 2013
Disclaimer:
“Views expressed here are the views of the individualand do not reflect the views or policies of theOrganization.”
Table of Contents
Background
Objectives
Key definitions
Exemptions
Qualifications
Key conditions for registration
Capital Adequacy
General Obligations
Background
SEBI initially in 2007 issues a draft regulations on Investment Advisors inviting publiccomments. The matter was thereafter discussed at various levels including FSDC sub-committee.
The concern has been mainly to regulate the activity of persons who call themselves,wealth managers, private bankers, advisors etc and provide various kinds of financialproducts to their clients.
SEBI in September 2011 issued a concept paper on regulation of investment advisors andpublic comments were invited.
SEBI board in its meeting held on August 16, 2012 approved the enactment of SEBI(Investment Advisors) Regulations
Five months thereafter SEBI on January 21, 2013 finally notified the SEBI (InvestmentAdvisors) Regulations, 2013.
These regulations shall come into force on the 90th day from the date of notification i.eApril 20, 2013.
Objectives
Tackle the issue of Conflict of Interest in Distribution of Financial Products - Arising due to thedual role played by the distributors as an agent of investors as well as of the manufacturers andreceiving compensation from both.
Provide a regulatory framework for profile based advice, suitability and appropriateness,enhanced disclosures and the choice of entity either to act as a advisor to the client or an agentof the manufacturer.
The said regulations will regulate the activity of entities who are in the business of providinginvestment advice in respect of securities and investment products.
Mandatory registration of investor advisor within six months from the effective date, minimumnet worth, qualification and certification and adherence of other compliances.
Initially the objective was to have the investment advisors regulated through a Self RegulatoryOrganisation (SRO) registered under the SEBI (Self Regulatory Organization) Regulations, 2004.
However, no SRO has been so far registered and therefore till such time these regulations willbe implemented and regulated by SEBI directly.
Key Definitions
“investment advice” means advice relating to
investing in, purchasing, selling or
otherwise dealing in securities or investment products, and
advice on investment portfolio containing securities or investment products,
whether written, oral or through any other means of communication
for the benefit of the client and
shall include financial planning:
However - Investment advice given through newspaper, magazines, any electronic or broadcasting ortelecommunications medium, which is widely available to the public shall not be considered asinvestment advice for the purpose of these regulations.
“investment adviser” means any person,
who for consideration,
is engaged in the business of providing investment advice
to clients or other persons or group of persons and
includes any person who holds out himself as an investment adviser, by whatever name
called
Key Definitions
“Consideration” means
any form of economic benefit
including non-cash benefit
received or receivable for providing investment advice
“Financial Planning ” shall include analysis of clients’
current financial situation
Identification of their financial goals and
developing and recommending financial strategies to realise such goals
Exemptions
Any person who gives general comments in good faith in regard to trends in the financial orsecurities market or the economic situation where such comments do not specify anyparticular securities or investment product.
Any insurance agent or insurance broker who offers investment advice solely in insuranceproducts and is registered with IRDA;
Any pension advisor who offers investment advice solely on pension products and isregistered with PFRDA
Any distributor of mutual funds, who is a member of a self regulatory organisationrecognised by the Board or is registered with an association of asset management companiesof mutual funds, providing any investment advice to its clients incidental to its primaryactivity.
Any advocate, solicitor or law firm, who provides investment advice to their clients, incidentalto their legal practise.
Exemptions
Any member of ICAI, ICSI, ICWAI, Actuarial Society of India or any other professional body asmay be specified by the Board, who provides investment advice to their clients, incidental tohis professional service.
Any stock broker or sub-broker registered under SEBI (Stock Broker and Sub-Broker)Regulations, 1992, portfolio manager registered under SEBI (Portfolio Managers) Regulations,1993 or merchant banker registered under SEBI (Merchant Bankers) Regulations, 1992, whoprovides any investment advice to its clients incidental to their primary activity.
Provided that such intermediaries shall comply with the general obligation(s) and responsibilitiesas specified in Chapter III of these regulations.
Provided further that existing portfolio manager offering only investment advisory services mayapply for registration under these regulations after expiry of his current certificate of registrationas a portfolio manager
Exemptions
Any fund manager, by whatever name called of a mutual fund, alternative investment fund orany other intermediary or entity registered with the Board;
Any person who provides investment advice exclusively to clients based out of India.
Provided that persons providing investment advice to Non-Resident Indian or Person of IndianOrigin shall fall within the purview of these regulations;
Any representative and partner of an investment adviser which is registered under theseregulations - Provided that such representative and partner shall comply with regulation 7 ofthese regulations;
Any other person as may be specified by the Board.
Qualification
Minimum qualification
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 or
A graduate in any discipline with an experience of at least five years in activities relating toadvice in financial products or securities or fund or asset or portfolio management.
Certification
Certification on financial planning or fund or asset or portfolio management or investment advisory services
from NISM; or
from any other organization or institution including FPSB or any recognized stock exchange in India provided that such certification is accredited by NISM.
For existing investment advisors two years time provided to complete the certification
Capital Adequacy
In case of a Corporate Minimum net worth of Rs 25 lakhs
In case of a Individual / Partnership firm Minimum net tangible assets of Rs 1 lakh
For existing investment advisors – one year time provided to comply with the capital adequacyrequirement
“Net worth” means the aggregate
value of paid up share capital plus free reserves (excluding reserves created out of revaluation)reduced by the
aggregate value of accumulated losses, deferred expenditure not written off, includingmiscellaneous expenses not written off, and
capital adequacy requirement for other services offered by the advisers in accordance withthe applicable rules and regulations.
Consideration of application
KEY considerations by SEBI
appropriately qualified and certified as specified in regulation 7;
fulfills the capital adequacy requirements as specified in regulation 8;
fit and proper persons based on the criteria as specified in Schedule II of the Securities andExchange Board of India (Intermediaries) Regulations, 2008;
infrastructure to effectively discharge the activities of an investment adviser;
Previous history of refusal r any disciplinary action by SEBI
In case a bank or an NBFC proposes to undertake investment advisory services, whether it hasbeen permitted by Reserve Bank of India and the application is made through a subsidiary orseparately identifiable department or division;
Entity incorporated outside India to offer investment advisory services through a subsidiary inIndia
A foreign citizen proposes to undertake investment advisory services, it is through an office inIndia
Certificate Validity Period – 5 years from the date of issue
General Obligations
include the words ‘Investment Advisor’ in its name.
In case the investment advisory service is being provided by a separately identifiabledepartment or division or a subsidiary, then such separately identifiable department or divisionor subsidiary shall include the words ‘investment adviser’ in its name;
Not to receive any consideration by way of remuneration or compensation or in any other formfrom any person other than the client being advised,
Not to enter into transactions on its own account which is contrary to its advice given to clientsfor a period of fifteen days from the day of such advice.
Disclosure of conflict of interest if any with other activities
Follow KYC procedure
Abide by the code of conduct specified under these regulations
General Obligations
RISK Profiling - obtain information about the client
Age, Investment objective including the time horizon
Income details, Existing investments / assets
Risk appetite / tolerance, Liability / borrowing details
Suitability Process
Investment advice is provided is appropriate to the risk profile of the client;
Documented process for selecting investments based on client’s investment objectives and financial situation
Recommendation or transaction entered into:
(i) meets the client’s investment objectives;
(ii) is such that the client is able to bear any related investment risks consistent with itsinvestment objectives and risk tolerance;
(iii) is such that the client has the necessary experience and knowledge to understand therisks involved in the transaction. ial product
Maintenance of record for a period of 5 years for the advice provided along with the rationalebehind that advice duly signed and dated
Disclosure to clients all material information about the investment advisor - its business,disciplinary history, terms and conditions for offering advisory services, consideration includingthose receivable by its associate / subsidiary company for execution services etc.
Appointment of a Compliance Officer
Grievance handling process and systems
Segregation of execution Services from investment advisory with full disclosure to client andwithout any obligation on client
Annual Audit to be conducted by member of ICSI or ICAI.
Questions
