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NISM X-A Investment Adviser Level 1 study materials
NISM X-A Investment Adviser Level 1 study resources

NISM X-A Investment Adviser Level 1: Introduction to Investment Advice and the Investment Advisory Profession

NISM X-A Investment Adviser Level 1 · Work through your exam, one topic at a time.

All guide sections

Introduction to Investment Advice and the Investment Advisory Profession

Domain focus

This domain tests whether you can separate regulated investment advice from product selling, and whether you know an adviser's legal identity, duties and limits.

What counts as investment advice

Under the SEBI (Investment Advisers) Regulations, 2013, investment advice means advice relating to dealing in, or investing in, securities. It excludes advice given to the public at large through newspapers, magazines or similar media, and advice that is merely incidental to another professional service such as law or accountancy, or to execution by a registered intermediary. A person who gives such advice for consideration must be registered with SEBI as an investment adviser.

Advisory versus distribution

A distributor is paid by the product manufacturer through commission or trail. An adviser is paid by the client through fees and, after the 2020 amendment, cannot receive any commission or remuneration from product manufacturers. Advisory and distribution activities inside the same firm must be segregated at the client level, and the client must be told in writing which capacity the person is acting in.

Core duties

  • Act in the client's best interest as a fiduciary and disclose conflicts in writing.
  • Give advice suitable to the client's documented risk profile.
  • Keep records of the advice and the reasons for it.
  • Do not hold client assets or operate through a power of attorney, and do not execute trades unless separately registered.

Worked example

A bank relationship manager recommends a mutual fund and earns trail commission from the AMC. That is distribution, not investment advice. The moment the bank charges the client a fee for a personal financial plan, it needs investment adviser registration, the commission for that client must stop, and the client must be informed in writing.

Traps

Assuming a free suggestion is outside the rules (consideration matters). Assuming an adviser may accept gifts or hospitality from a product manufacturer.