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Sebi Tightens Conduct Of IAs To Protect Investors From Undue Losses

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Sebi Tightens Conduct Of IAs To Protect Investors From Undue Losses
Yagnesh Kansara - 30 December 2019

Mumbai, December 30: In its continuous efforts to make Equity market safer for the investors, the capital market regulator Securities and Exchange Board of India (Sebi) has decided to further strengthen the conduct of Investment Advisors (IAs) while providing investment advice to their clients. Sebi has proposed number of changes with respect to IAs, which will come into force from January 1, 2020.

The role of IAs in the capital market is of crucial importance and they are expected to perform their duty with accountability. Keeping in this mind, Sebi has restricted free trials offered by IAs to their clients with immediate effect. Sebi said, “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”.

As per Sebi (Investment Advisers) Regulations, 2013, investment advice can be given only after completing risk profiling of the client and ensuring suitability of the product. Risk profiling of the client is essential to provide advice on suitable product based on various criteria like income, age, securities market experience etc.
Sebi said registered Investment Advisors (RIAs) should complete the client profiling process based on information provided by the client. RIAs should obtain consent of the client on completed risk profile either through registered email or through a physical document.
Sebi has also asked IAs not to accept part payments (where some part of the fee is paid in advance) for any products/services offered by them to their clients.
Sebi has asked IAs to refrain from receiving their fees in cash and receive fees though banking channel only. Sebi said, 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, Sebi explicitly said, 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. Sebi also clarified that, IAs shall not accept cash deposits.
In order to help the investors to take the informed decision, Sebi has also asked IAs to display status of complaints on their website as part of regulator’s efforts to impart more transparency to investors availing advisory services.
Sebi said, IAs shall display the Number of complaints at the beginning of the month, Received during the month and the number of complaints resolved during the month and pending at the end of the month including reasons for pendency of all unresolved complaints. The details with respect to all types of complaints should be put on the home page of the website/mobile app (without scrolling). The information should be displayed properly so that it is readable and made available on monthly basis (within 7 days of end of the previous month), the regulator emphasised.

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