Who are considered as a Investment Advisors?
An investment advisor, as described in the Investment Advisors Act of 1940, includes any person or group that provides investment decisions or analyzes securities in exchange for commissions, whether personally handling client funds or in writing. We possess a degree of unilateral power that enables them to operate on their clients ' behalf without requiring any official approval prior to an operation being carried out. We offer advice on trading in, purchasing, selling or otherwise engaging with shares or investment products, Advice on the investment portfolio of shares (see Section 2(h) of the Shares Contracts Regulation Act 1956 to clarify what all securities are protected by the term Securities) or investment products. This guidance can be given in prose, orally or by any other means of communication.
What are the Duties and responsibilities of Investment advisors which are registered with Securities Exchange Board of India (SEBI)?
- They will behave in a fiduciary manner and in the interests of their investors
- They are liable for not sharing any confidential information
- They will comply with the Code of Conduct if defined
- They will ethics investor risk analysis and risk assessment
- It is their duty to ensure that transactions are suitable and relevant to their client's risk profile.
- Written records should be maintained for a period of 5 years
- The proper system and protocol for redressing customer complaints should be preserved.
Any investment advisor may not use any tool or scheme to defraud any client or prospective consumer.
An investment advisor may be in some manner such as:
- Corporate body (including Limited Liability Partnerships (LLPs)
- Partnership Firms
Moreover, before setting up an investment advisor, it is important to register with SEBI under the SEBI (Investment Advisers) Regulations, 2013 as RIA. We have an obligation to act as a fiduciary if licensed, i.e. we just recommend a commission-free product.
The process for identifying as an investment advisor is explained below:
- Applicants for certification as investment advisors must apply their application in Form A together with the required documents provided for in the regulations at a non-refundable charge
S.No. Particular Fees 1. For Individual and Firms 5000 2. For Body Corporate including Limited Liability Partnerships 25000
- On receipt of application - The Board may allow the applicant to provide additional information or explanation or may recommend that the applicant testify before the Board in person on matters relating to investment advisory services. The total time in which the claimant is licensed depends entirely on how they satisfy all the criteria and in all ways offers the complete information.
- The board must consider the following criteria before awarding the certificate:
- Whether the claimant is a person or a corporate body or a company;
- If the applicant is a person, he must be eligible as follows:
- A technical certificate or postgraduate degree or postgraduate degree in Finance, Accounting, Industry, Commerce, Economy, Capital Markets, Banking, Insurance or a college recognised by the central government or any state government or approved international university or organization; or
- A specialist in any field with at least five years ' experience in financial product or investment consultancy, fund or asset management or portfolio management practices.
- And other conditions as set down in Regulation 7
- While, where the claimant is a corporate body, all agents on behalf of the applicant offering investment advice are properly trained and accredited in compliance with Regulation 7;
- Whether the applicant satisfies the capital adequacy criteria as defined below in the regulations;
- In the case of a corporate body, the net value should not be less than twenty-five lakh, whereas the net value of a person or company should not be less than one lakh in the case of INR.
- The claimant, its members and spouses, if any, shall be eligible and skilled according to the criteria set out in Schedule 11.
- Once, the board is satisfied that the applicant complies with all the requirements as specified in regulations, shall send the intimation to the applicant and on receipt of fees as prescribed below:
S.No. Particular Fees 1. In case of individuals and firms 10,000 2. In case of Body Corporate including Limited Liability
The Board shall grant the Form B registration certificate as set out in the regulations. This remains valid until stopped or canceled.
What are the compliances to be fulfilled after obtaining registration?
- The reporting requirements defined by SEBI must be complied with from time to time.
- For any updates / circulars / guidelines provided from time to time with respect to their business, they will visit the SEBI website periodically.
- They shall notify SEBI of any content change in the information already given to SEBI within a reasonable period of time.