Sebi Notifies New Regulations For Registered Investment Advisers

The Securities and Exchange Board of India (Sebi) has notified changes to the regulatory framework for registered investment advisors (RIAs), which will come into effect following inclusion in the official gazette.

The new norms require mandatory segregation of advisory and distribution activities at the client level, to avoid conflicts of interest.

For non-individual advisors (a corporate or an organisation), the client-level segregation needs to be adhered to at the group level.

Through an arm’s length relationship between its activities, the corporate entity may provide advisory services from a separately identifiable department.

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RIAs will be allowed to give executive services through direct schemes or products in the securities market. “However, no consideration may be received directly or indirectly, at the investment advisor’s group or family level, for such services,” Sebi said.

Further, the enhanced eligibility criteria for RIAs will come into force. This would translate into a minimum net worth requirement of Rs 50 lakh for non-individual advisors and Rs 5 lakh for individual advisors.

New RIAs would also be required to have an enhanced professional or post-graduate qualification in relevant subjects, as well as relevant experience of 5 years. However, Sebi has allowed grandfathering for existing RIAs on this provision.

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RIAs with over 150 clients also need to apply as non-individual investment advisors. This would increase their net worth requirement fivefold to Rs 50 lakh.

Guidelines dealing with various other issues, such as key terms and conditions of investment advisory services, modes of charging fee, periodicity, etc will be separately specified through a circular.

Sebi had issued a consultation paper in January on these proposals, and had sought comments from the public on these proposed changes.