Regulatory and Compliance Requirements for Investment Advisers
Registration and eligibility
Registration with SEBI is mandatory to give investment advice for consideration. Individual applicants need the NISM Series X-A certification, the prescribed qualification and experience, and net worth of at least Rs 5 lakh. Non-individual applicants need net worth of at least Rs 50 lakh, a principal officer and a compliance officer, and certified personnel.
Conduct and disclosure
The code of conduct requires honesty, diligence, confidentiality, avoidance of conflicts and no assurance of returns. Advisers must:
- obtain and document a risk profile for every client and give suitable advice;
- sign a written client agreement;
- charge fees only from clients through banking channels, with no commission from product manufacturers;
- maintain records for at least five years;
- avoid holding client securities or money or acting under a power of attorney;
- segregate advisory from distribution at client level;
- disclose conflicts and any legal or disciplinary action.
Supervision
Non-individual advisers must complete an annual compliance audit and submit the report to SEBI; individual advisers must conduct an annual self-assessment. KYC and anti-money-laundering obligations apply. Complaints go first to the adviser, then to SEBI SCORES, then to the online dispute resolution mechanism.
Worked example
An adviser receives Rs 60,000 from an AMC described as business support. Accepting it breaches the fee-only requirement and creates an undisclosed conflict. The payment must be refused or reversed, the arrangement disclosed, and the correction recorded in the compliance file.
Traps
Assuming registration is optional below a client threshold. Charging fees in cash. Believing a power of attorney is permissible. Treating distribution commission as a fee.