Investment advice and the roles of persons associated with it
The statutory definition
Under the SEBI (Investment Advisers) Regulations, 2013, "investment advice" means advice relating to investing in, purchasing, selling or otherwise dealing in securities or investment products - including advice on an investment portfolio - given for consideration in any form (money, securities, or otherwise) and by any mode of communication. Advice on financial planning is covered only to the extent it concerns securities.
Registration is compulsory unless an exemption applies. Typical exemptions cover intermediaries whose advice is incidental to a regulated activity (portfolio managers, merchant bankers, research analysts), banks/insurers/NBFCs acting under their own regulator, and persons advising solely on public issues or on legal/accounting matters rather than on securities selection. The Research Analyst regime is narrower: it covers recommendations on specific securities, without the personalised, portfolio-level fiduciary relationship an adviser carries.
Conduct obligations to remember
An adviser acts in a fiduciary capacity, must be independent and unbiased, must risk-profile the client, must ensure suitability, must disclose all conflicts (including commission arrangements and own holdings in recommended securities), must keep records for the prescribed period, must give the client periodic statements of holdings and fees, and must not promise assured or guaranteed returns. Testimonials and performance claims in advertising are prohibited; advertising must carry the SEBI registration number and the prescribed disclaimer.
Traps
- "Advice" without fee is generally outside the registration trigger; commission is consideration.
- Confusing RA and IA registration; an IA may be both but must comply with both regimes.
- Assuming advice given incidentally by a distributor makes the distributor an adviser.
Worked example
A retired banker wants to charge each client a flat annual fee to recommend which mutual fund schemes fit that client's goals. That is personalised advice for consideration on securities → IA registration is required, and the adviser cannot simultaneously take a trail commission on those same recommended schemes.