Investment advisor is a person or an organization, who provides investment advise or suggestions to their clients based on market analysis and research. As an investment advisor, it is the fiduciary duty to provide clients with the best financial advice which is in the best interest of their clients.
Investment advisors are involved planning the financials and investments for their clients by considering a number of factors like investment goal of the client, current financial situation, liabilities etc. The advisors charge a certain amount as fees for providing their services. Investment advisors can provide advise or recommendations in various asset classes. There are advisors who provide recommendations across majority of investment classes ranging from mutual funds to insurance and stock markets, whereas there are certain advisors who specialize into a specific asset class and provide investment advise or recommendations for that only. To legally enter into the profession of investment advisor, one must be registered with the Securities and Exchange Board of India (SEBI). SEBI is the governing body of the investment advisory space and ensures that advisors always keep client’s interest ahead of their own interest.
Let us now take a look at registered investment advisors in detail and also find out about the eligibility criteria of being a registered investment advisor.
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What is Registered Investment Advisor?
What are Registered Investment Advisors?
In India, it is absolutely illegal to be provide investment advise without holding a valid registration number from SEBI. It is mandatory for every investment advisor, whether individual or organization to be registered with SEBI to carry out the profession of investment advisor. SEBI is the financial market regulator in India and also regulates the investment advisory space. Apart from registration, investment advisors must mandatorily abide with the guidelines set by SEBI.
The first and foremost guideline issued by SEBI for investment advisors is to always keep the interest of the clients ahead of their own interest, no matter what the situation or circumstances are. Any investment advisor found to go against the guidelines of SEBI can be convicted to the court.
Also, as per SEBI, investment advisors should inform their clients about all the potential conflicts of interest to their clients well in advance. It is mandatory for an investment advisor to behave ethical with clients under all the circumstances. The fee charged by investment advisors should not exceed the guidelines prescribed by SEBI. Also, all such transactions where any fee is paid to the advisor should only be carried out through banks and not in cash.
A registered investment advisor plays various roles in the life of an investor. Apart from providing investment advice, the advisor acts as a financial planner, tax saving advisor and portfolio manager. Also, being the regulator, SEBI governs the working of all registered investment advisor and an investor can approach SEBI if any registered investment advisor is found to use any fraudulent practice or misconduct.
Who Needs to Register as an Investment Advisor
Every individual or organization who is engaged or willing to engage in the business of investment advisory must be registered with SEBI. Any individual or organization who is providing investment advice to anyone for consideration must be considered as an investment advisor. To be registered with SEBI as an investment advisor, one can apply as an individual, company or corporate body. There are few entities which are exempted from SEBI registration and can still provide investment advice to their clients. These include:
- IRDAI Registered Insurance Agents
- PFRDA Registered Pension Advisors
- AMFI Registered Mutual Fund Advisors
- All professionals who are registered members of Institute of Chartered Accounts of India, Institute of Company Secretaries of India or Institute of Cost and Work Accountants of India.
Eligibility Criteria for Being a Registered Investment Advisor
To ensure investor confidence and enhance the transparency in investment advisory industry, SEBI has laid down a strict eligibility requirement to be a registered investment advisor and keeps on amending it from time to time. TO be registered as an investment advisor one must be eligible in the following categories:
Net Worth – SEBI amended the minimum net worth required to be registered as an investment advisor in October 2020. Initially any individual could have registered as an investment advisor if they have a minimum net worth of 1 lakh. However, the same has been revised to INR 5 lakhs after October 2020. For partnership firms, corporate bodies and LLPs the minimum net worth required is INR 50 lakhs.
Qualifications – Educational qualifications are very important to be a registered investment advisor. TO be eligible, one must hold a postgraduate degree or diploma in finance, banking, business management, accountancy, commerce, economics or insurance with a minimum experience of 5 years. Also it is mandatory to hold investment advisor Level 1 and Level 2 certifications from National Institute of Securities Market (NISM).
Other requirements – Apart from these, one must submit the following documents for applying as an investment advisor with SEBI:
- KYC Documents
- Experience Letters
- CIBIL Records
- Net Worth Certificate Certified by Chartered Accountant
- Income Tax Returns of 3 years
- Application Fee (INR 5000 for individuals and INR 25000 for others)
Conclusion
As an investor, when you choose an investment advisor for investment guidance, the first and foremost step you should take is to check that whether the advisor is registered with SEBI or not. They should be having a registration number which can be verified from the website of SEBI. A registered investment advisor will always work in the interest of clients with utmost transparency and ethics.
Happy Investing!
