Tag Archives: investment advisor

RIA – audit

SEBI has vide its circular dated 30th September, 2021 extended the timeline by which the annual compliance audit is to be conducted by registered investment advisors to 31st December, 2021. They get further one month time to report the adverse audit findings, if any. Hitherto, the timelines were 30th September, 2021 and 31st October, 2021 respectively.

Read on:

  1. “Guidelines for Investment Advisers” issued vide Circular No. SEBI/HO/IMD/DF1/CIR/P/2020/182 dated September 23, 2020 (hereinafter referred as “Circular”) inter alia prescribed timeline of six months from the end of each financial year for Investment Advisers (IA) to conduct annual audit in respect of compliance of SEBI (Investment Advisers) Regulations, 2013 (“IA Regulations”) and circulars issued thereunder. Further, a timeline of one month from the date of the audit report but not later than October 31st of each year was prescribed for submitting adverse findings of such audit, if any, for the previous financial year starting with the financial year ending March 31, 2021.
  2. The Circular further specified a timeline of 6 months from the end of the financial year for the IAs to obtain an annual certificate from an auditor confirming compliance with the client level segregation requirements as specified in Regulation 22 of the IA Regulations.
  3. SEBI is in receipt of representations from IAs requesting for extension of abovementioned timelines prescribed for annual compliance audit and annual certificate confirming client level segregation due to pandemic.
  4. After due consideration, for financial year ending March 31, 2021, it has been decided to extend the timeline for compliance with the aforesaid requirements by three months.
  5. Accordingly, the Circular stands partially modified as under:
    i. In accordance with clause 2 (vii) of the Circular, for financial year ending March 31, 2021, the IAs shall conduct the annual compliance audit by December 31, 2021 and submit the adverse findings of the audit, if any, by January 31, 2022.
    ii. Further, in accordance with clause 2 (i) of the Circular, for financial year ending March 31, 2021, IA shall obtain a certificate from an auditor by December 31, 2021.

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fee structure for investment advisors in IFSC

IFSCA circular dated 15th April, 2021 – self explanatory

Fee structure for Investment Advisers and Portfolio Managers in IFSC

1.In exercise of the powers conferred by Section 12 of the International Financial Services Centres Authority Act, 2019, the fee structure for Investment Advisers and Portfolio Managers in IFSC is being revised as follows:

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investment advisors in IFSC

SEBI circular dated 28th September, 2020 amending the Operating Guidelines for Investment Advisors in International Financial Services Centres. Gist follows:

i. Clause 3 of the operating guidelines read with para 3 of circular dated February 28, 2020 is amended as follows-
“3. The following persons shall be eligible to apply to the Board for registration as an Investment Adviser in IFSC:
a. Any entity, being a company or a limited liability partnership (LLP) or any other similar structure recognised under the laws of its parent jurisdiction, desirous of operating in IFSC as an Investment Adviser (IA), may form a company or LLP to provide investment advisory services.
b. The formation of a separate company or LLP shall not be applicable in case the applicant is already a company or LLP in IFSC.”

The earlier clause stipulated net worth criteria which has been removed. Net worth stipulation is appearing in another clause 8.

“Clause 4 is amended as follows – 4. Persons seeking registration under the Investment Adviser Regulations read with these Guidelines shall provide investment advisory services only to those persons referred in Clause 9 (3) of the IFSC Guidelines. Further, IAs shall ensure to comply with the applicable guidelines issued by the relevant overseas regulator/ authority, while dealing with persons resident outside India and non-resident Indians seeking investment advisory services from them.”

Earlier the onus to comply with the IA guidelines in case of persons being resident outside India and non-resident Indians were on the non residents themselves. Now it has been changed to ensure that the IAs have to comply with the applicable guidelines issued by the relevant overseas regulatory/ authority while dealing with non resident clients.

Clause 8(c) of the operating guidelines is amended as follows-
“c. The IA/ parent entity shall fulfil the aforesaid net worth requirement, separately and independently for each activity undertaken by it under the relevant regulations.”

Clause 8(c) should be read with Clause 8(a) and (b) to understand it better.

  1. Net Worth Requirement [Corresponding Regulation in Investment Adviser Regulations-
    In case of applicants referred to in para 3, the net worth requirement shall be as under:
    a. An applicant shall have a net worth of not less than USD 1.5 million.
    b. In case the IA is set up as a subsidiary, the net worth requirement is to be met by the subsidiary itself. However, if the subsidiary does not meet the criteria, the net worth of the parent can be considered.

The earlier 8(c) said that the IAs shall fulfill the aforesaid net worth requirement. Now the amended 8(c) stipulates that either the IA or its parent entity shall fulfill the aforesaid net worth requirement.

Clause 9 of the operating guidelines is amended as follows-
“9. An IA shall ensure to conduct annual audit in respect of compliance with
Investment Adviser Regulations and these guidelines from a chartered accountant or a company secretary.”

The earlier clause 9 stipulated as follows:

  1. An IA shall ensure to conduct annual audit in respect of compliance with Investment Adviser Regulations and these guidelines from a chartered accountant or a company secretary or its equivalent under the laws in force of the country in which the applicant is registered or
    incorporated.

The earlier clause was little confusing, it was not clear the last part of the paragraph referred to the auditors or the regulations. The amended clause is much more satisfactory.

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guidelines for investment advisors

SEBI circular dated 23rd September, 2020 on the subject.

  1. Securities and Exchange Board of India (SEBI), after considering the inputs from public consultation, reviewed the framework for regulation of Investment Advisers (IA) and notified Securities and Exchange Board of India (Investment Advisers) (Amendment) Regulations, 2020 (hereinafter referred as “amended IA Regulations”) on July 03, 2020. These amendments shall come into force on September 30, 2020.
  2. In addition to the above, Investment Advisers shall ensure compliance with the following guidelines:
    (i) Client Level Segregation of Advisory and Distribution Activities
    To ensure client level segregation at Investment Adviser’s group/family1
    level, as per Regulation 22 (5) of amended IA Regulations, following compliance and monitoring process shall be adopted:
    a. Existing clients, who wish to take advisory services, will not be eligible for availing distribution services within the group/family of IA. Similarly, existing clients who wish to take distribution services will not be eligible for availing advisory services within the group/family of IA.
    b. A new client will be eligible to avail either advisory or distribution services within the group/family of IA. However, the option to avail either advisory services or distribution services shall be made available to such client at the time of on boarding.
    c. Client under these guidelines shall include individual client or non-individual client.
    d. The client shall have discretion to continue holding assets prior to the
    applicability of this segregation under the existing advisory/distribution

“Group” and “family of an individual investment adviser” shall be as per Regulation 22 (3) (iii) and Regulation 2(gc) respectively of the amended IA regulations arrangement. However, the client shall not be forced to liquidate/switch such existing holdings.
e. PAN of each client shall be the control record for identification and client level segregation.
f. In case of an individual client, “family of client” shall be reckoned as a single client and PAN of all members in “family of client” would jointly and severally be the control record. However, the same is not applicable for non-individual clients.
g. The dependent family members shall be those members whose assets on
which investment advisory is sought/provided, originate from income of a
single entity i.e. earning individual client in the family. The client shall provide an annual declaration or periodic updation as the case maybe in respect of such dependent family members.
h. IA shall, wherever available, advice direct plans (non-commission based) of products only.
i. The investment adviser shall maintain on record an annual certificate from an auditor (in case of individual IA) and its statutory auditor (in case of a nonindividual IA) confirming compliance with the client level segregation requirements as specified in Regulation 22 of amended IA Regulations. Such annual certificate shall be obtained within 6 months of the end of the financial year and form part of compliance audit, in terms of Regulation 19(3) of the amended IA Regulations.
(ii) Agreement between IA and the client
a. Regulation 19 (1) (d) of the amended IA Regulations provides that IA shall
enter into an investment advisory agreement with its clients. The said agreement shall mandatorily cover the terms and conditions provided in
Annexure-A.
b. IA can include additional terms and conditions in the agreement without
diluting the provisions of SEBI (Investment Advisers) Regulations, 2013 and
amendments thereto as well as circulars issued thereunder.
c. IA shall ensure that neither any investment advice is rendered nor any fee is charged until the client has signed the aforesaid agreement and provided copy of signed agreement to the client.
d. IA shall enter into investment advisory agreement with its clients including existing clients latest by April 01, 2021 and submit a report, confirming the same to SEBI latest by June 30, 2021.


“Family of client” and “AUA” shall be as per as per Regulation 2 (gb) and Regulation 2(aa) respectively of the
amended IA regulations

(iii) Fees
Regulation 15 A of the amended IA Regulations provide that Investment Advisers shall be entitled to charge fees from a client in the manner as specified by SEBI, accordingly Investment Advisers shall charge fees from the clients in either of the two modes:
(A) Assets under Advice (AUA) mode
a. The maximum fees that may be charged under this mode shall not exceed
2.5 percent of AUA per annum per client across all services offered by IA.
b. IA shall be required to demonstrate AUA with supporting documents like
demat statements, unit statements etc. of the client.
c. Any portion of AUA held by the client under any pre-existing distribution
arrangement with any entity shall be deducted from AUA for the purpose of
charging fee by the IA.
(B) Fixed fee mode
The maximum fees that may be charged under this mode shall not exceed INR 1,25,000 per annum per client across all services offered by IA.
General conditions under both modes
a. In case “family of client” is reckoned as a single client, the fee as referred
above shall be charged per “family of client”.
b. IA shall charge fees from a client under any one mode i.e. (A) or (B) on an
annual basis. The change of mode shall be effected only after 12 months of
on boarding/last change of mode.
c. If agreed by the client, IA may charge fees in advance. However, such
advance shall not exceed fees for 2 quarters.
d. In the event of pre-mature termination of the IA services in terms of
agreement, the client shall be refunded the fees for unexpired period.
However, IA may retain a maximum breakage fee of not greater than one
quarter fee.
(iv) Qualification and certification requirement
Regulation 7 of the amended IA Regulations specifies the minimum qualification and certification requirements for IAs. Further, in terms of second proviso of regulation 7 (1), existing individual IAs above fifty years of age (as on September 30,2020) shall not be required to comply with the qualification and experience requirements specified under Regulation 7(1)(a) and 7(1)(b) of the amended IA Regulations. However, such IAs shall hold NISM accredited certifications and comply with other conditions as specified under Regulation 7 (2) of the amended IA Regulations at all times.
(v) Registration as Non Individual Investment Advisor
a. As per Regulation 13(e) of the amended IA Regulations, an individual IA shall apply for registration as non-individual investment adviser on or before reaching 150 clients.
b. Such application for registration shall be made in FORM-A as per the
amended IA regulations, along with the requisite fee and same shall be
assessed in accordance with the provisions of SEBI(Investment Advisor)
Regulations, 2013 and amendments thereto as well as circulars issued
thereunder.
c. Once number of clients reaches 150 and till grant of registration as a nonindividual IA, Individual IA shall not on-board fresh clients. However, during the period of examination of application by SEBI, individual IA shall continue to service existing clients. In case the aforesaid IA does not get registration as non-individual IA,such IA shall continue the advisory activities as an Individual IA while ensuring that the numbers of clients does not exceed 150 in total.
d. As per Regulation 13(e) of the amended IA Regulations, existing Individual IA having more than 150 clients as on September 30, 2020 shall not on-board fresh clients and such Individual IA shall apply for registration as nonindividual IA latest by April 01, 2021. However, during the period of examination of application by SEBI, individual IA shall continue to service existing clients.
e. Existing Individual IA, having more than 150 clients on September 30, 2020, shall report their number of clients to SEBI through sebiria@sebi.gov.in, latest by October 15, 2020 in the following format:


(vi) Maintenance of record
Regulation 19 (1) of the SEBI (Investment Advisers) Regulations, 2013 provides that IA shall maintain records with respect to his activities as an investment adviser. In this regard, it is clarified that:
a. IA shall maintain records of interactions ,with all clients including prospective clients (prior to onboarding), where any conversation related to advice has taken place inter alia, in the form of:

i. Physical record written & signed by client,
ii. Telephone recording,
iii. Email from registered email id,
iv. Record of SMS messages,
v. Any other legally verifiable record.
b. Such records shall begin with first interaction with the client and shall continue till the completion of advisory services to the client.
c. IAs shall be required to maintain these records for a period of five years.
However, in case where dispute has been raised, such records shall be kept
till resolution of the dispute or if SEBI desires that specific records be
preserved, then such records shall be kept till further intimation from SEBI.
(vii) Audit
a. As per regulation 19 (3) of the amended IA Regulations, IA shall ensure that annual audit in respect of compliance of SEBI (Investment Advisers)
Regulations, 2013 and circulars issued thereunder is conducted. The audit
shall be completed within six months from the end of each financial year.
b. The adverse findings of the audit, if any, along with action taken thereof duly approved by the individual IA/management of the non-individual IA, shall be reported to respective SEBI office (based on the registered address of IA) within a period of one month from the date of the audit report but not later than October 31st of each year for the previous financial year starting with the financial year ending March 31,2021.
(viii) Risk profiling and suitability for non-individual clients
a. Regulation 16 and 17 of SEBI (Investment Adviser) Regulations, 2013
mandates risk profiling and suitability for all categories of clients.
b. In order to further enhance the risk profiling and encompass suitable factors in case of non-individual clients, IA shall use the investment policy as approved by board/management team of such non-individual clients for risk profiling and suitability analysis.
c. The discretion to share the investment policy/relevant excerpts of the policy shall lie with the non-individual client. However, IA shall have discretion not to onboard non-individual clients if they are unable to do risk profiling of the non-individual client in the absence of investment policy.
(ix) Display of details on website and in other communication channels
In order to protect the interest of investors and bring more transparency in the functioning of investment advisers, IAs shall display the following information prominently on its website, mobile app, printed or electronic materials, know your client forms, client agreements and other correspondences with the clients:

 Complete name of Investment Adviser as registered with SEBI,
 Type of Registration-Individual, Non-Individual,
 Registration number, validity of registration,
 Complete address with telephone numbers,
 Contact details of the Principal Officer –contact no, email id etc.,
 Corresponding SEBI regional/local office address.

  1. Applicability
    Client level segregation of advisory and distribution activities, agreement and fees to be charged are aligned together. IA shall ensure compliance with measures stated above at clause 2(i), 2(ii) and 2(iii) latest by April 01, 2021.
    Compliance with measures referred above at clause 2 (vi), 2(viii) and 2(ix) shall be ensured latest by January 01, 2021. Further timelines have been specified under clause 2(iv), 2(v) and 2(vii).

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Regulation of investment advisors

SEBI has vide its circular dated 6th August, 2020 sought to regulate the administration and supervision of investment advisors through a wholly owned subsidiary of recognised stock exchanges. It can be a newly incorporated subsidiary or an existing subsidiary also.

The parameters for the same are given below.

A. Criteria for grant of recognition-

The recognition of stock exchange subsidiary, in terms of the aforesaid Regulation 14, shall be based on the eligibility of the parent entity, i.e. the stock exchange, for which the following eligibility criteria is laid down:
i. Number of years of existence: Minimum 15 years
ii. Stock exchanges having a minimum networth of INR 200 crores
iii. Stock exchanges having nation-wide terminals
iv. Investor grievance redressal mechanism including Arbitration
v. Capacity for investor service management gauged through reach of Investor Service Centers (ISCs)- Stock exchanges having ISCs in at least 20 cities

B. Setting up of requisite systems by stock exchanges for the purpose

i. The stock exchange shall either form a subsidiary or designate an existing
subsidiary for the purpose of regulating IAs.
ii. The subsidiary shall include in its MoA, AoA and bye-laws, requisite provisions to fulfil the below mentioned responsibilities.
iii. The subsidiary shall put in place systems/process for grievance redressal, administrative action against IAs, governing IAs, maintaining data, sharing of information with SEBI etc.
iv. The subsidiary shall have the necessary infrastructure like adequate office space, equipment and manpower to effectively discharge the below mentioned activities. Infrastructure may be shared with other group entities where required.
C. Responsibilities of subsidiary of a stock exchange-

The subsidiary of a stock exchange shall have following responsibilities:
i. Supervision of IAs including both on-site and offsite
ii. Grievance redressal of clients and IAs
iii. Administrative action including issuing warning and referring to SEBI for enforcement action
iv. Monitoring activities of IAs by obtaining periodical reports
v. Submission of periodical reports to SEBI
vi. Maintenance of database of IAs

The stock exchanges who are fulfilling the above criteria are required to submit their application to the SEBI within 30 days of this circular.

Copy of SEBI circular can be found at this link https://www.sebi.gov.in/legal/circulars/aug-2020/administration-and-supervision-of-investment-advisers_47276.html

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investment advisors

SEBI has notified certain amendments to SEBI (Investment Advisors) Regulations 2013.

Gist of these amendments are as follows

A. Segregation of Advisory & Distribution Activities
• Segregation of Advisory & Distribution Activities at client level to avoid conflict of interest.
• An individual shall have the option to register as an Investment Adviser or
provide distribution services as a distributor.
• A non-individual investment adviser shall have client level segregation at group level for investment advisory and distribution services and maintain an arm’s length relationship between its activities by providing advisory services through a separately identifiable department or division.
B. Implementation services
• Investment Advisers are allowed to provide implementation services (Execution) through direct schemes/ products in the securities market. However, no consideration can be received directly or indirectly, at investment adviser’s group or family level for these services.
C. Agreement between Investment Adviser and client
• Mandatory agreement to be entered between Investment Adviser and the client for ensuring greater transparency with reference to advisory activities.
D. Fees
• The fee charged by the Investment Adviser for providing Investment Advice from a client shall be in the manner as specified by SEBI.
E. Eligibility Criteria for IAs
• Enhanced eligibility criteria for registration as an Investment Adviser including net worth of Rs.50 lakhs for non-individuals and Rs. 5 lakhs for individuals.
• Individual investment adviser or a principal officer of a non-individual investment adviser to have enhanced professional or post-graduate qualification in relevant subjects and relevant experience of five years while grandfathering existing Individual Investment Advisers from complying with the enhanced qualification and experience as specified by SEBI.
• Individuals registered as investment advisers whose number of clients exceed 150 in total, shall apply for registration with SEBI as non-individual investment adviser.

https://www.sebi.gov.in/media/press-releases/jul-2020/sebi-notifies-amendments-to-sebi-investment-advisers-regulations-2013_47006.html

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Investment Advisor

Decisions from SEBI board meeting dated 17th February, 2020

SEBI (Investment Advisers) Regulations, 2013
SEBI had issued a Consultation Paper on Review of Regulatory Framework for
Investment Advisers in January 2020 seeking comments from the public on the
proposals that were intended to strengthen the regulatory framework for
Investment Advisers.
The Board, after considering the issues in all four consultation papers and public
comments, approved the proposals on regulatory changes including amendments
to SEBI (Investment Advisers) Regulations, 2013
.
The major regulatory changes are as under:
1. Segregation of Advisory & Distribution Activities at client level to avoid conflict of
interest. Further, Individual Investment Adviser shall not provide distribution
services.
2. Implementation services (Execution) through direct schemes/ products in the
securities market shall be allowed to Investment Advisers for the convenience of
the investors.
3. To mandate an agreement between Investment Adviser and the client incorporating the key terms and conditions regarding Investment Advisory Services for greater transparency.
4. Bringing clarity in payment of fees and introduction of upper limit on the fees
charged to Investors.
5. Enhanced eligibility criteria for registration as an Investment Adviser including net
worth, qualification and experience requirements while grandfathering existing
Individual Investment Advisers from complying with the enhanced qualification
and experience as specified by the Board.
6. Person dealing in distribution of securities shall not use the nomenclature
“Independent Financial Adviser (IFA) ” or “Wealth Adviser” or any other similar
name, unless registered with SEBI as Investment Adviser.

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