Sebi proposes tight norms for investment advisers

Sebi said it would be compulsory for the investment advisers to be a member of an SRO for obtaining certification from the regulator. The application should be made to the SRO of which the applicant is a member and forwarded by the SRO to the regulator with its recommendations. “The certificate shall be valid till the investment adviser continues to be a member of the SRO on whose recommendation the certificate was granted,” Sebi stated in the proposed draft.

With regard to general obligations and responsibilities, an investment adviser should act in a fiduciary capacity towards its clients and should disclose all conflicts of interest as and when they arise. “An investment adviser shall not divulge to anybody either orally or in writing, directly or indirectly, any confidential information about its clients which comes to its knowledge, without taking prior permission of its clients except where such disclosures are required to be made in compliance with any law,” Sebi said.

According to Sebi, an investment adviser should disclose to a prospective client all material information about itself, its business, its disciplinary history, the terms and conditions on which it offers advisery services and its affiliations with other intermediaries so that the client can take an informed decision on whether to avail of its services. Before recommending a security, an investment adviser should disclose all commissions and rewards, if any, that it will receive if the client chooses the recommended security, the draft noted.

Sebi said that an investment adviser violating the provisions of the act “may be dealt with as per the Sebi (procedure for holding enquiry by enquiry officer) regulations, 2002”. The proposed draft, Sebi (Investment Advisers) Regulations, 2007 has been placed in the public domain. And, it has sought comments on the draft regulations on or before October 31, 2007.

Who’s an investment adviser?

An investment adviser is a person who, for a consideration, is engaged in the business of providing investment advice to others, either directly or through publications or writings or electronic mails, or who, for a consideration and as part of a regular business, issues or publishes reports or analyses containing investment advice. The term includes any person who holds himself out as an investment adviser (by whatever name called) to others.

Adviser Norms

•Should register with Sebi

•Should be a member of an SRO

•Should act in fiduciary capacity towards clients

•Cannot reveal information about clients

•Should make disclosures to clients

•Should reveal commission and rewards to clients