New Advisor Rules

The long awaited Sebi regulations specifying various requirements for a person or corporate body to act as investment advisor were finally out on January 21, 2013. According to the Gazette of India notification, the Sebi Investment Advisors 2013 guidelines bring into play requirements related to qualification, certification, capital adequacy, period of validity of the certificate and other general obligations. The notification makes it immensely clear on who an advisor is and their obligations in this role. Who is an advisor? The regulation defines an advisor as one who offers advice on buying, selling and dealing with securities and investment products for a consideration. The advisor cannot receive any compensation from those who bring out investment products, such as mutual funds, but have to earn their income from investors. They have to be registered with Sebi, have prescribed qualifications and adequate capital, comply with a code of conduct, ensure that they have risk-profiling processes, comply with requirements for ensuring that the recommended product is suitable for the investor, and procure and use investor information with fiduciary responsibility. By defining advisors, Sebi has clarified that insurance agents, mutual fund distributors and stock brokers, among others, are not advisors. All these individuals represent a pr