Investment advisers to ensure client-level division of distribution: Sebi

Markets regulator Sebi on Wednesday came out with guidelines for investment advisers asking them to ensure segregation of advisory and distribution activities at the client level.

The regulator, after considering inputs from public consultation, reviewed the framework for regulation of investment advisers and amended the Investment Advisers Regulations in July. These amendments will come into force from September 30.

Investment advisers (IA) will have to ensure compliance with regard to client-level segregation of advisory and distribution activities, Sebi said in a circular.

To ensure client-level segregation at the IA's group level, Sebi said compliance and monitoring process will be adopted. Besides, investment advisor will have to enter into an investment advisory agreement with its clients.

Sebi said existing clients who wish to take advisory services will not be eligible for availing distribution services within the group/family of IA.

Similarly, existing clients who wish to take distribution services will not be eligible for availing advisory services within the group of IA.

"A new client will be eligible to avail either advisory or distribution services within the group/family of IA. However, the option to avail either advisory services or distribution services shall be made available to such client at the time of on boarding," Sebi said.

It further said IA will enter into an investment advisory agreement with its clients. The IA will ensure that neither any investment advice is rendered nor any fee is charged until the client has signed the aforesaid agreement and provided a copy of the signed agreement.

"IA shall enter into investment advisory agreement with its clients including existing clients latest by April 1, 2021 and submit a report, confirming the same to Sebi latest by June 30, 2021," the regulator noted.

With regard to fees, Sebi said IAs will charge fees from the clients in either of the two modes -- assets under advice (AUA) and fixed fee.

Under the AUA mode, the maximum fees that may be charged will not exceed 2.5 per cent of AUA per annum per client across all services offered by the IA.

In the case of fixed fee mode, maximum fees that may be charged will not exceed Rs 1.25 lakh per annum per client across all services.

The IA will charge fees from a client under any one mode on an annual basis and the change of mode will be effected only after 12 months of on-boarding/last change of mode.

If agreed by the client, IA may charge fees in advance. However, such advance willnot exceed fees for two quarters, the regulator said.

Sebi said the IA will have to ensure compliance with measures related to client-level segregation of advisory and distribution activities, agreement and fees by April 1, 2021.

With regard to qualification, Sebi said existing individual IAs above 50 years of age as on September 30, 2020 will not be required to comply with the qualification and experience requirements specified under the amended IA Regulations.

However, such IAs will require to hold NISM accredited certification.

On registration as non-individual investment adviser, Sebi said an individual IA can apply for registration as non-individual investment adviser on or before reaching 150 clients.

The IA will have to maintain records of interactions with all clients, including prospective clients (prior to on-boarding), where any conversation related to advice has taken place in the form of SMS or telephonic conversation, among others.

Such records will begin with first interaction with the client and will continue till the completion of advisory services to the client. They need to maintain these records for a period of five years.

However, in case where a dispute has been raised, such records will be kept till its resolution or if Sebi desires that specific records be preserved, then such records will be kept till further intimation from the regulator.

The guidelines pertaining to qualification of IA registration as non-individual investment adviser will come into force from January 1, the regulator said.