**Executive Summary:**
This circular from the Securities and Exchange Board of India (SEBI) outlines measures to strengthen the conduct of Investment Advisers (IAs) and protect investors. Effective January 1, 2020, IAs must adhere to restrictions on free trials, ensure proper risk profiling with client consent, receive fees only through banking channels, and display complaint status on their websites. This circular is issued under Section 11(1) of the SEBI Act, 1992.
**Key Points / Main Content:**
* **Restriction on Free Trial:**
* IAs are prohibited from providing free trials for any products/services to prospective clients.
* IAs shall not accept part payments where some part of the fee is paid in advance for any product/service.
* **Proper Risk Profiling and Consent of Client on Risk Profiling:**
* IAs must complete the client's risk profile based on provided information.
* IAs must obtain the client's consent on the completed risk profile via registered email or physical document.
* **Receiving Fees Through Banking Channel Only:**
* IAs must accept fees only via account payee crossed cheques, demand draft, or direct credit through NEFT/RTGS/IMPS/UPI.
* IAs are prohibited from accepting cash deposits.
* **Display of Complaints Status on Website:**
* IAs must display the following complaint information on their website/mobile app homepage without scrolling:
* Number of complaints at the beginning of the month.
* Number of complaints received during the month.
* Number of complaints resolved during the month.
* Number of complaints pending at the end of the month.
* Reasons for pendency.
* The information should be displayed in font size 12 or above and updated monthly within 7 days of the previous month's end.
**Impact Analysis**
**Investment Advisers (IAs):**
* Impact: Stricter regulations on providing advice, fee collection, and transparency in handling complaints.
* Action Required: Update practices to comply with restrictions on free trials, ensure proper risk profiling and consent, modify fee collection methods to exclude cash, and display complaint status on websites/apps.
**Investors:**
* Impact: Enhanced protection through regulated advice, transparent fee structures, and readily available information on complaint resolution.
* Action Required: Provide accurate information for risk profiling and monitor the complaint status displayed by IAs.
Key Entities Referenced
Securities and Exchange Board of India (SEBI): Regulatory body for securities market in India, issuing the circular.
Investment Advisers (IAs): Entities regulated by SEBI, subject to the measures outlined in the circular.
Securities and Exchange Board of India Investment Advisers Regulations, 2013: Regulations that provide the code of conduct to be followed by Investment Advisers.
Section 11I of the Securities and Exchange Board of India Act, 1992: Legal basis for the circular, granting SEBI the power to issue it.
NEFT: National Electronic Funds Transfer - A system for electronic funds transfer.
RTGS: Real Time Gross Settlement - A system for electronic funds transfer.
IMPS: Immediate Payment Service - An instant real-time payment system.
UPI: Unified Payments Interface - A real-time payment system.
CIRCULAR
SEBI/HO/IMD/DF1/CIR/P/2019/169 December 27, 2019
All Investment Advisers
Sir/Madam,
Subject: Measures to strengthen the conduct of Investment Advisers (IA)
1. Securities and Exchange Board of India (Investment Advisers) Regulations, 2013 (IA
Regulations) provides for code of conduct to be followed by IAs. In order to further strengthen
the conduct of IAs, while providing investment advice and to protect the interest of investors
seeking their advice, the IAs shall comply with the following:
(i) Restriction on free trial
As per SEBI (Investment Advisers) Regulations, 2013, investment advice can be given after
completing risk profiling of the client and ensuring suitability of the product. It has come to
the notice that IAs are providing advice on free trial basis without considering risk profile of
the client. Hence the IAs shall not provide free trial for any products/services to prospective
clients. Further, IAs shall not accept part payments (where some part of the fee is paid in
advance) for any product/service.
(ii) Proper risk profiling and consent of client on risk profiling
Risk profiling of the client is essential to provide advice on suitable product based on various
criteria like income, age, securities market experience etc. RIAs shall provide investment
advice only after completing the following steps:
a. Complete the risk profile of the client based on information provided by the client.
b. Obtain consent of the client on completed risk profile either through registered email
or physical document.
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It is observed that investment advisers are receiving advisory fee in the form of cash deposit
in their bank accounts or through payment gateways which does not provide proper audit
trail of fees received from the clients. To bring transparency in dealing with the clients, IAs
shall accept fees strictly by account payee crossed cheques / demand draft or by way of
direct credit into their bank account through NEFT/ RTGS/IMPS/UPI. It is clarified that, IAs
shall not accept cash deposits.
(iv) Display of complaints status on website
In order to bring more transparency and enable the investors to take informed decision
regarding availing of advisory services, IAs shall display the following information on the
homepage (without scrolling) of their website/mobile app. The information should be
displayed properly using font size of 12 or above and made available on monthly basis
(within 7 days of end of the previous month):
Number of complaints
At the beginning Received Resolved Pending at the Reasons for
of the month during the during the end of the pendency
month month month
2. The measures as referred above shall come into effect from January 01, 2020.
3. This circular is issued in exercise of the powers conferred under Section 11(1) of the Securities
and Exchange Board of India Act, 1992, to protect the interests of investors in securities and to
promote the development of and to regulate the securities market.
Yours faithfully,
Naveen Sharma
General Manager
022-26449709
Email: naveens@sebi.gov.in
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