The Securities and Exchange Board of India (Sebi) on Thursday announced that it has decided to bring investment advisors who sell equity or equity-linked products under its direct regulatory purview.

In effect, the market regulator suggests that investment advisors also have to disclose commissions and rewards earned on the products sold to investors, according to the proposals in the ‘Draft SEBI Investment Advisers Regulations 2007’ put on its official website on Wednesday evening.

Registration
Further, Sebi has made it mandatory for all investment advisors of ‘Securities’ to get themselves registered with it. Though there is no official data on the number of investment advisors in the country, but it is estimated that there are several thousands who earn a living by selling equity or equity-linked products to investors.

“An investment advisor shall disclose to a prospective client all material information about itself, its business, its disciplinary history, the terms and conditions on which it offers advisory services, its affiliations with other intermediaries and such other information as is necessary to take an informed decision to avail its services,” said the draft regulations.

The rules also make it mandatory for investment advisors to disclose all commissions and rewards that they will receive before recommending a security or the services of a stock broker or other intermediary to a client, if the client chooses the recommended security or services.

The application shall be made to the self regulatory organisation, of which the advisor will be part. The investment adviser shall not disclose any confidential information about its clients except when the law requires such disclosures to be made.

The regulations state that an investment advisor shall comply with the bye-laws, rules and governing norms of every self-regulatory organization of which it is a member.

Transparency
Chartered accountants and taxation consulants aver that this is the first signal that a self-regulatory organisation can actually take off in this space. 

In this context, Shailesh Haribhakti, Chairman, Financial Planning Standard Board of India (FPSBI) said, “These are not the full blown SRO guidelines for regulating the distribution of financial products. They will ensure transparency and better intermediation.” 

Securities and Exchange Board of India’s Chairman M Damodaran had spoken about the need to regulate investment advisors and the possibility of FPSBI acting as a self regulatory organisation.