Introduction
Investment advisory services play a crucial role in guiding investors toward informed financial decisions. However, in India, this practice is closely regulated to protect investors and maintain the integrity of the financial system. This blog provides a detailed overview of the legal provisions governing investment advisory in India, including registration requirements, compliance norms, and recent regulatory developments.
What is Investment Advisory?
An Investment Advisor (IA) is defined under the Securities and Exchange Board of India (SEBI) (Investment Advisers) Regulations, 2013 as any person who, for consideration, provides advice to clients on investing in securities or investment products, including portfolio management and financial planning.
Investment advisory services can be provided by individuals, firms, companies, partnerships, or any entity that holds itself out as an investment advisor.
Investment advice includes recommendations on buying, selling, or holding securities and investment portfolios, tailored to the client’s financial goals and risk appetite.
Regulatory Framework Governing Investment Advisory Services
a. SEBI (Investment Advisers) Regulations, 2013
SEBI regulates investment advisory services through the Investment Advisers Regulations, 2013, aiming to protect investors by ensuring that only qualified and registered entities can provide advisory services. Key provisions include:
- Mandatory registration with SEBI for anyone offering investment advisory services in return for fees or compensation.
- Prescribed eligibility requirements related to qualifications, certifications, and net worth or deposits.
- A code of conduct and fiduciary duties to act in the best interest of clients.
- Disclosure norms about fees, risks, conflicts of interest, and investment strategy.
- Ongoing compliance, reporting, and audit standards.
b. Recent Amendments and Guidelines (2024–2025)
SEBI introduced significant changes in late 2024 and early 2025, refining eligibility criteria, net worth/deposit requirements, and compliance norms. Noteworthy amendments include:
- Relaxation of academic qualifications to minimum graduate degrees from previously post-graduate levels.
- Substitution of net worth criteria with prescribed deposit amounts linked to client count.
- Introduction of guidelines on the use of technology, including artificial intelligence in advisory services, and the appointment of compliance officers.
- Emphasis on annual audits, disclosure, and client agreements.
These updates reflect the evolving nature of advisory services and SEBI’s intent to balance investor protection with ease of business for advisors.
c. Other Relevant Laws
Investment advisory services in India are also governed by several other laws:
- Indian Contract Act, 1872: Governs the contractual relationship between adviser and client.
- Information Technology Act, 2000: Regulates online advisory platforms, data protection, and electronic consent.
- Income Tax Act, 1961: Advisers must comply with TDS, GST, and income tax provisions applicable to their professional income.
Eligibility Criteria for Registration
To register as a SEBI Registered Investment Adviser (RIA), applicants must comply with the following:
- Hold a minimum graduate degree or recognized professional qualification in finance, economics, commerce, or related fields.
- Obtain base certification from recognized bodies like the National Institute of Securities Markets (NISM) or hold credentials such as the CFA Charter.
- Maintain prescribed deposits with SEBI, scaled to the number of clients served.
- Principal officers and key personnel providing advisory services must meet certification and qualification norms.
- Non-individual entities (companies, LLPs, firms) must also fulfill specified financial criteria, such as minimum net tangible assets.
- Registered Investment Advisers must renew their registration every five years and comply continuously with SEBI’s conduct and reporting obligations.
Net Worth Requirement:
- Individuals: Minimum ₹5 lakhs
- Companies/LLPs: Minimum ₹50 lakhs (as per SEBI Amendment in 2020)
Penalties for Non-Compliance
SEBI has the authority to take the following actions against non-compliant advisers:
- Suspension or cancellation of registration
- Monetary penalties under Section 15HB of the SEBI Act
- Prosecution in cases involving fraud, misrepresentation, or negligence
Who are Exempted from Registration?
Certain professionals and entities are exempt from registering as investment advisers, including:
- Bankers, chartered accountants, lawyers, insurance agents providing incidental investment advice as part of their professional services.
- Mutual fund distributors and stock brokers registered under SEBI regulations but who do not primarily engage in investment advisory services.
- Persons offering general comments on securities markets in the public domain (e.g., via newspapers or broadcast media).
However, any entity or individual offering targeted, fee-based personalized advice on securities must register with SEBI.
Investment Advisory Lawyer in Jayanagar
Recent Trends and Developments
- Growth of Robo-Advisory: Automated investment advice through AI and machine learning tools is becoming popular.
- Tightened Compliance: SEBI’s recent consultations have focused on improving investor onboarding, reducing mis-selling, and enhancing suitability checks.
- Investor Empowerment: Tools like SEBI’s SCORES portal make grievance redressal accessible to retail investors.
Best Practices for Compliance
- Obtain and renew SEBI registration promptly.
- Maintain comprehensive client records and risk assessments.
- Segregate advisory and distribution operations.
- Ensure transparent fee structures.
- Disclose all potential conflicts of interest.
- Conduct periodic internal audits and staff training.
Conclusion
The investment advisory profession in India demands both financial expertise and legal compliance. With SEBI’s framework in place, advisers are entrusted with protecting investor interests through honest, unbiased, and suitable advice. Staying compliant is not just a regulatory requirement; it’s a mark of professionalism and trust.
Disclaimer: This blog is for general informational purposes only and does not constitute legal advice. Privacy laws may vary based on circumstances and jurisdiction. Readers are advised to consult a qualified legal professional, such as Bisani Legal, for specific advice regarding data protection, privacy rights, or related legal concerns.
Published by: Mr. Saket bisani
Date: 01/10/2025
