The Securities and Exchange Board of India (Sebi) has notified changes to the existing regulatory framework for registered investment advisers (RIAs), which will come into force after being included in the official gazette.
The new norms would require mandatory segregation of advisory and distribution activities at client-level to avoid conflict of interest.
For a non-individual adviser (i.e. a corporate or an organisation), the client-level segregation needs to be adhered to on the group-level.
Through an arm’s length relationship between its activities, the corporate entity can provide advisory services from a separately identifiable department or division.
RIAs will be allowed to give executive services through direct schemes or products in the securities market. “However, no consideration can be received directly or indirectly, at investment advisor’s group or family level for these services,” Sebi said.
Further, the enhanced eligibility criteria for RIAs will also come into force. This would translate into minimum net worth requirement of Rs 50 lakh for non-individual advisors and Rs 500,000 for individual advisers.
New RIAs would also be required to have enhanced professional or post-graduate qualification in relevant subjects and relevant experience of five years. However, Sebi has allowed grandfathering for existing RIAs on this provision.
RIAs with over 150 clients would also need to apply as non-individual investment advisor. This would increase their networth requirement five-fold to Rs 50 lakh.
Guidelines dealing with various other issues like key terms and conditions of investment advisory services agreement, 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 public on these proposed changes.