HM Journal

Role of Investment Advisor in SEBI

Introduction

An investment adviser (also known as a stock broker) is a person or organisation that, in exchange for a fee, provides investment advice or performs securities research, whether directly managing clients’ funds or through written publications. The Investment Advisers Act of 1940 defined the exact definition of the term.

A Registered Investment Advisor is an investment advisor who has enough assets to be registered with the Securities and Exchange Commission (SEC) (RIA). Investment advisors are also known as “financial advisors,” and their names are spelt “investment advisers” or “financial advisers,” respectively.

  • Investment advisers are financial experts who, in exchange for a fee, provide investment advice or perform security research.
  • Investment advisers in the United States must register with their respective states, as well as the Securities and Exchange Commission (SEC), if they handle $100 million or more in client assets.
  • Investment advisers frequently have discretionary control over their customers’ assets and must adhere to fiduciary rules.

What is an Investment advice ?

Investment advice includes financial planning and includes advice on investing in, purchasing, selling, or otherwise dealing in securities or investment products, as well as investment portfolios containing securities or investment products, whether written, oral, or through any other means of communication for the client’s benefit.

For the purposes of the IA laws, investment advice provided through newspapers, magazines, or any other electronic, broadcasting, or telecommunications media that is widely available to the public is not considered investment advice. Investment advisers, on the other hand, are required to observe the SEBI (Research Analysts) Regulations, 2014 when making public appearances, making recommendations, or expressing an opinion regarding securities or public offerings through the media.

Role of an investment advisor

  • Terms of adherence to the Securities and Exchange Board of India (Investment Advisers) Regulations, 2013 and any subsequent changes, regulations, circulars, or announcements.
  • At all times, adherence to the qualifying conditions set out in the Investment Adviser Regulations.
  • The client’s risk capacity and risk avoidance are assessed throughout the risk assessment process.
  • Reporting on potential and current investments to clients.
  • Client-specific KYC, risk assessments, investment advice and suitability analysis reports, terms and conditions documents, related books of accounts, and a register containing a list of clients, as well as dated investment advice and its rationale, in accordance with the Securities and Exchange Board of India(Investment Advisers) Regulations, 2013.
  • The Securities and Exchange Board of India (Investment Advisers) Regulations, 2013, contain provisions about audit.
  • Undertaking to follow the Code of Conduct set out in the Securities and Exchange Board of India(Investment Advisers) Regulations, 2013 (Second Schedule).

The investment adviser must ensure that:

1. All investments on which investment advice is given are appropriate for the client’s risk profile;

2. It has a defined procedure for picking assets depending on the investing goals and financial position of its clients.

3. It is aware of the nature and risks associated with the goods or assets chosen for clients.

4. It has a reasonable basis for believing that a recommendation or transaction entered into,

 5. Whenever a client is advised to purchase a complex financial product, the recommendation or advice is based on a reasonable assessment that the financial product’s structure and risk reward profile are consistent with the client’s experience, knowledge, and investment objectives.

 How are investment advisers regulated in India?

  • On January 21, 2013, the SEBI (Investment Advisers) Regulations, 2013 (“IA Regulations”) were published. On April 21, 2013, the IA Regulations went into force. The rules include the requirements for registration, certification, capital sufficiency, risk profile, and appropriateness, as well as disclosures, a code of conduct, documents to be kept, and inspection procedures.
  • Unless an exemption exists, no person shall operate as an investment advisor or hold himself out as one under the IA Regulations unless he has acquired a certificate of registration from SEBI on or after the commencement of the IA Regulations.

What is the procedure for becoming a SEBI-registered investment adviser?

Form A, as stipulated in the First Schedule of the IA Regulations, must be submitted along with any required supporting papers. The process for becoming a registered investment adviser may be found on the SEBI website under “Info for>Investment Advisers>How to Become a Registered Investment Adviser.”

Who is required to submit an application for IA Regulations registration?

  • Unless explicitly exempted by the IA Regulations, every person who is involved or intending to participate in the business of giving investment advice to customers or other individuals or groups of persons must apply for registration under the IA Regulations.
  • A single proprietor can also apply for registration as an Investment Adviser, and their application will be considered similarly to that of an individual applicant.
  • Under regulation 4 of the IA Regulations, certain individuals, such as insurance agents, pension advisers, mutual fund distributors, stock broker or sub-broker, portfolio managers, fund manager, advocate, solicitor or law firm, and others, are exempt from obtaining registration if certain conditions are met.

CONCLUSION

When choosing an investment adviser for investment advice, the first and most important step you should take as an investor is to verify whether or not the advisor is registered with SEBI. They should have a registration number that can be checked on the SEBI website. A registered investment advisor will always act in the best interests of their customers while maintaining the highest level of transparency and ethics.

REFERENCE

  1. Sebi.gov.in
  2.  SEBI (Investment Advisers) Regulations, 2013

Article written by: Shreya kashyap (2nd Year/3rd semester)

College name : School of Law, UPES, Dehradun.

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