Widely framed Investment Advisers Regulations released

SEBI has released today the SEBI (Investment Advisers) Regulations, 2013, to come into effect from the ninetieth day of their publication. While a more detailed post will follow, here are some first impressions.

SEBI has cast a very wide net, almost amounting to an overkill. 
Every Investment Adviser, as defined, will be required to register with SEBI to carry on business of providing investment advice. What constitutes investment advice has been widely defined to mean, “advice relating to investing in, purchasing, selling or otherwise dealing in securities or investment products, and advice on investment portfolio containing securities or investment products, whether written, oral or through any other means of communication for the benefit of the client and shall include financial planning”.
There are several exceptions to the term Investment Advisers. Insurance Agents/brokers who offer investment advice solely in insurance products and registered with IRDA are not covered. Similar exemption for Pension Advisers is granted. Mutual Fund distributors are also given exemption subject to certain conditions. Professionals CAs, CSs, ICWAs and Advocates providing investment advice incidental to their professional services are also not covered. 
Still, even considering these exemptions, the number of investment advisers is likely to be huge.
Each of such advisers will have to apply and obtain registration. Existing Investment Advisers have 6 months from the Regulation coming into effect to apply and if they do not, they will have to discontinue their activity. New Investment Advisers will have to apply for and obtain registration as a pre-condition of carrying on such activity.
There is no minimum threshold limit of advisory fees or similar for applying for registration. Every such Investment Adviser will have to apply. SEBI thus has taken upon itself this massive job of scrutinising every such application and granting (or rejecting) registration. And this is only the starting. After granting registration, it will have to monitor each of such Advisers as to whether they follow the Regulations/Code of Conduct (again very widely framed) or not. There will expectedly be a large number of allegations of non-compliances – some arising out of SEBI’s own inspections, investigation and information and many arising out of investor complaints. SEBI will have to process each of these and take action. This would perhaps have scared any regulator already burdened otherwise. 
Each such Investment Adviser will need to have prescribed qualifications/training and also the minimum net worth.
One-time application fees and recurring registration fees will also have to be paid.
A follow up article will discuss some more aspects of these Regulations.

About the author

CA Jayant Thakur


  • “SEBI has cast a very wide net, almost amounting to overkill.’

    This, to say the least, at best, is an overstatement (an ‘under kill’); if one were to consider the numerous exceptions/exemptions listed out.

    If one were to give an anxious consideration, there is prima facie no rhyme or reason in exempting “Insurance Agents/brokers” from the regulations. In a manner of speaking, the objective and aim of the measures has a direct correlation to the specialised field of “Risk Management”. Should risk be the core, then the cover there against i.e. Insurance, and has to be regarded as the protective shell. In other words, both are so inter- related or connected that delinking one from the other, it appears, suffers from a faulty logic; hence the wisdom behind the referred exemption is rightly questionable.

    More questionable is the other exemption of “Professionals CAs, CSs, ICWAs” in “providing investment advice incidental to their professional services”. The purport or import of the rider, couched in the words “incidental to their professional services”, is not readily understood. On the contrary, the exemption is, if insightfully perceived, not but bereft of any merits. To be precise, for instance, in case of a CA, – that is, a mere CA without any special qualification or exposure or experience in the field of ‘investment’ be taken to be so equipped as to be fit enough to offer and provide any sort of ’ investment advice’ as envisaged.
    In any event, as of now, as to what extent the said reservation, assuming it to be justified, be fully taken care of / guarded against by the specified requirement that,- “ Each such Investment Adviser will need to have prescribed qualifications/training and also the minimum net worth.”= seems to have left uncovered / wide open.
    To be contd.

  • Reminiscing (in a lighter vein):

    A real life story, as narrated by an eminent tax lawyer (Nani A Palkhivala) in one of his annual budget speeches (used to be delivered almost as a ritual) reads,>
    In several parts of Africa when the rains do not come, the tribal chief conducts a ritual dance watched by the anxious members of the tribe. The dance does not bring rains , but it consoles and satisfies the people who feel that their chief is doing something to alleviate their misery. Our feverish changes in the law are intended to serve the same purpose as the tribal chief’s rain dance.

    Reflecting in a wider perspective or with deeper vision, it may not after all be brushed aside as a poor comparison with most of the laws or regulations being churned out, regularly and systematically, but seemingly having no regard to the wisdom or lack of it behind the expectation of any welcome outcome or results of such efforts, even in the long run.

  • Will this cover the traditional "Investment Advisors" who advise their own funds who are offshore and earn service fee and carry? I refer to the "onshore people" of the "offshore funds".

  • @Anonymous-

    Conservative answer seems to be yes. The definition of Investment Advisor is very broadly framed and appears to include categories that may not be intended to be covered. However, there is an exclusion for Investment Advisers who provide advice exclusively to clients outside India (other than NRIs/POIs).

    All in all, it would have to be determined on facts in each case of course.

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