
Having a SEBI registered license implies that an individual is qualified and competent to offer investment advice as mandated by SEBI regulations. (Read here: Who is a SEBI Registered Investment Adviser? )RIA can be individual, corporate or partnership mode. An RIA can offer a wide variety of services and charge fees directly from the client, within the confines of SEBI regulations – either a flat fee or as a percentage of assets. The different types of advisory services offered by RIA include direct stocks advisory, direct mutual fund advisory, investment portfolio advisory, financial planning, goal-based investment planning, private equity advisory, any other investment products like portfolio management service (PMS), Alternative Investment Funds (AIF), etc., which come under the purview of SEBI regulations. RIAs cannot earn commission on any such investment products, thereby providing conflict free advice.
The services offered by a SEBI registered adviser are solution-oriented. A competent and ethical adviser will take a holistic view of a Client’s financial situation first rather than pushing products that he may or may not need. The only way he earns direct income is from the fees chargeable to the Client and the entire engagement is transparent. The Client knows exactly how much he is paying and what is he paying for.
As mandated by SEBI, an RIA as a fiduciary is obligated to do the following during any client engagement
- Prepare Letter of Engagement outlining the relevant terms, conditions and disclaimers and to be duly signed by both the Client and the Adviser.
- Initiate proper risk profiling and assess suitability, accordingly recommend investment advice.
- Comply with KYC requirements of the Client. Confirm and maintain client KYC record if already done. If not done, initiate and conclude client KYC.
- Need to undergo periodic audit and submit report to SEBI incl., corrective action taken, if any.
- Need to follow strict code of conduct which includes disclosing conflict of interest, if any and act in the best interest of clients at all times.
- Need to comply with eligibility criteria including networth requirement, certification etc., at all times.
- Need to maintain records – client-wise KYC, risk assessment, investment advice incl. suitability and rationale, all client communication, etc.
An investment advisor registered with SEBI thus goes through a rigorous regulatory process.
Hope the role of a SEBI registered adviser and the stringent regulations he has to comply with are clear to you now.