No advice sans risk-profile of the client, Sebi to investment advisers

Regulator bans free trials, says no to cash deposits as fees

The Securities and Exchange Board of India’s (Sebi) circular, released on Friday, chalks out more stringent norms to be followed by the new class of intermediaries — registered investment advisers (RIAs). 

The regulator said it has discovered that RIAs were giving free advice on a trial basis, without considering the risk profile of the client. 

“Investment advice can be given after completing risk profiling of the client and ensuring suitability of the product ... Hence, IAs shall not provide free trial for any products/services to prospective clients,” the markets regulator said, with a view to protect investor interests.   

Besides risk-profiling on criteria such as age, income, and securities market experience, the IAs will need consent of the client on the completed risk-profile through email or a physical document.

The markets regulator also laid down directions on how an IA could accept payments. “IAs  shall not accept part payments (where some part of the fee is paid in advance) for any product or service,” it said. 

“It is observed that investment advisers are receiving advisory fee in the form of cash deposits in their bank accounts or through payment gateways, which does not provide proper audit trail of fees received from the clients,” Sebi pointed out. 

Earlier, it had received complaints from clients about investment advisors charging exorbitant fees and giving false expectations. 

To ensure transparency, Sebi has said IAs shall not accept cash deposits. They may accept fees by crossed checks or demand draft, or by way of direct credit into the bank account using the NEFT, RTGS, IMPS or UPI mechanisms. 

To ensure that investors are well-informed before taking the services of an IA, the regulator wants advisers to display the investor complaints against them and point out how many of these are still pending. 

These new norms will come into effect from January 1.

Sebi had formed the RIA regulations in 2013 to create fee-based intermediaries, whose revenues were linked purely to advisory services.