JOIN USSebi planning to put cap on investment advisors' fees
Cracking its whip on investment advisers indulging in unfair trade practices, watchdog Sebi is putting in place strict norms for them, including putting a ceiling on fees charged by them.
All investment advisers would need to register with Sebi (Securities & Exchange Board of India) after payment of required application and registration fees, while Sebi eventually wants them to be regulated through an SRO (Self Regulatory Organisation) model.
While the proposals have been approved by Sebi’s board, they could be soon notified by the market regulator.
As per the proposed norms, investment advisers would be under strict vigil for any front-running, a phrase used in market parlance for trading in stocks based on prior information about trades to be conducted by a fund manager
. The regulations follow several instances of certain equity research and investment advisory entities, including some overseas firms, issuing negative reports about Indian stocks and they have been accused of unfairly influencing the share prices and charging huge fees for sharing their reports.
To address any conflict of interest, investment advisers would be required to segregate their other businesses from their activity as an investment adviser and disclose all commission and rewards that they receive from their clients. Also, investment advisers may charge fees subject to the ceiling specified by Sebi.
They would also have to disclose to investor its holding or position, if any, in the financial product which is subject matter of recommendation.
If any conflicts of interest cannot be avoided, investment advisers would have to ensure that its clients are fairly treated and they would be barred from divulging any confidential information about their clients.
They would also have to abide by a Code of Conduct and conduct risks profiling and risk assessment of the investor.
Besides, they would be required to maintain written records relating to investment advisory services for a period of five years and conduct yearly audit in respect of compliance with regulation. They cannot employ any device or scheme to defraud any client or prospective client.
Five-year experience
Those aspiring to become an investment adviser would need to have an experience of at least five years in activities relating to advice in financial products or fund or asset or portfolio management, besides other educations qualifications.
Investment advisers would need certification on financial planning or fund or asset management or investment adviser or any such certification, while existing investment advisers will be given two years time for such certification.
Investment advisers who are body corporate shall have a net-worth of not less than Rs 25 lakh, while individuals or partnership firms shall have net tangible assets of not less than Rs 5 lakh.
The Sebi norms would also cover financial planning service, while representatives of investment adviser which are body corporate and the fund managers who are employees or advisers of mutual funds or asset management company or alternative investment funds are also required to register.
A bank which has been permitted by RBI to undertake investment advisory services through a subsidiary or a separate division, would need to seek Sebi registration.
Those exempted from the purview of Sebi regulation include a person giving general comments in good faith in regard to trends in the financial or securities market or the economic situation and where such comments do not specify any particular securities or investment product.