Investment_Advisers_Jan21

Investment_Advisers_Jan21_2013
3 (1) On and from the commencement of these regulations, no person shall act as aninvestment adviser or hold itself out as an investment adviser unless he has obtained acertificate of registration from the Board under these regulations:Provided that a person acting as an investment adviser immediately before thecommencement of these regulations may continue to do so for a period of six monthsfrom such commencement or, if it has made an application for a certificate under sub-regulation (2) within the said period of six months, till the disposal of such application.
3 (2) An application for grant of certificate of registration shall be made in Form A asspecified in the First Schedule to these regulations and shall be accompanied by a non-refundable application fee to be paid in the manner specified in Second Schedule.
4 The following persons shall not be required to seek registration under regulation 3 subject to the fulfillment of the conditions stipulated therefor, (a) Any person who gives general comments in good faith in regard to trends in thefinancial or securities market or the economic situation where such comments donot specify any particular securities or investment product;(b) Any insurance agent or insurance broker who offers investment advice solely ininsurance products and is registered with Insurance Regulatory and DevelopmentAuthority for such activity;(c) Any pension advisor who offers investment advice solely on pension products andis registered with Pension Fund Regulatory and Development Authority for suchactivity;3(d) Any distributor of mutual funds, who is a member of a self regulatory organisationrecognised by the Board or is registered with an association of asset managementcompanies of mutual funds, providing any investment advice to its clientsincidental to its primary activity;(e) Any advocate, solicitor or law firm, who provides investment advice to theirclients, incidental to their legal practise;(f) Any member of Institute of Chartered Accountants of India, Institute of CompanySecretaries of India, Institute of Cost and Works Accountants of India, ActuarialSociety of India or any other professional body as may be specified by the Board ,who provides investment advice to their clients, incidental to his professionalservice;(g) Any stock broker or sub-broker registered under SEBI (Stock Broker and Sub-Broker) Regulations, 1992, portfolio manager registered under SEBI (PortfolioManagers) Regulations, 1993 or merchant banker registered under SEBI(Merchant Bankers) Regulations, 1992, who provides any investment advice to itsclients incidental to their primary activity:Provided that such intermediaries shall comply with the general obligation(s) andresponsibilities as specified in Chapter III of these regulations:Provided further that existing portfolio manager offering only investment advisoryservices may apply for registration under these regulations after expiry of hiscurrent certificate of registration as a portfolio manager;(h) Any fund manager, by whatever name called of a mutual fund, alternativeinvestment fund or any other intermediary or entity registered with the Board ;(i) Any person who provides investment advice exclusively to clients based out ofIndia:Provided that persons providing investment advice to Non-Resident Indian orPerson of Indian Origin shall fall within the purview of these regulations;(j) Any representative and partner of an investment adviser which is registered underthese regulations:Provided that such representative and partner shall comply with regulation 7 ofthese regulations;(k) Any other person as may be specified by the Board .
5 (1) The Board may require the applicant to furnish further information or clarificationregarding matters relevant to investment advisory services for the purpose ofconsideration of the application filed under sub-regulation (2) of regulation 3.
5 (2) The applicant or his authorised representative , if so required, shall appear beforethe Board for personal representation.4
6 For the purpose of the grant of certificate the Board shall take into account all matters which are relevant to the grant of certificate of registration and in particular the following, namely, (a) whether the applicant is an individual or a body corporate or a firm;(b) whether in case the applicant is an individual, he is appropriately qualified andcertified as specified in regulation 7;(c) whether in case the applicant is a body corporate, all the representatives of the applicant who provide investment advice are appropriately qualified and certifiedas specified in regulation 7;(d) whether in case the applicant is a firm or a limited liability partnership, allpartners who are engaged in giving investment advice are qualified and certifiedas specified in regulation 7.(e) whether the applicant fulfills the capital adequacy requirements as specified inregulation 8;(f) whether the applicant , its representatives and partners, if any, are fit and properpersons based on the criteria as specified in Schedule II of the Securities andExchange Board of India (Intermediaries) Regulations, 2008;(g) whether the applicant has the necessary infrastructure to effectively discharge theactivities of an investment adviser;(h) whether the applicant or any person directly or indirectly connected with the applicant has in the past been refused certificate by the Board and if so, thegrounds for such refusal;(i) whether any disciplinary action has been taken by the Board or any otherregulatory authority against any person directly or indirectly connected to the applicant under the respective Act, rules or regulations made thereunder;In case a bank or an NBFC proposes to undertake investment advisory services,whether it has been permitted by Reserve Bank of India and the application ismade through a subsidiary or separately identifiable department or division;In case any body corporate, other than a Bank or NBFC, which proposes toundertake investment advisory services, whether, the application is made througha separately identifiable department or division;In case an entity incorporated outside India undertakes to provide investmentadvisory services under these regulations, whether, it has set up a subsidiary inIndia and whether such subsidiary has made the application for registration;(k)(j)(l)5(m) In case a foreign citizen proposes to undertake investment advisory services,whether the applicant has set up an office in India and proposes to undertakeinvestment advisory services through such office.
7 (1) An individual registered as an investment adviser under these regulations andpartners and representatives of an investment adviser registered under these regulationsoffering investment advice shall have the following minimum qualifications, at alltimes:(a) A professional qualification or post-graduate degree or post graduate diploma infinance, accountancy, business management, commerce, economics, capitalmarket, banking, insurance or actuarial science from a university or an institutionrecognized by the central government or any state government or a recognisedforeign university or institution or association; or(b) A graduate in any discipline with an experience of at least five years in activitiesrelating to advice in financial products or securities or fund or asset or portfoliomanagement.
7 (2) An individual registered as an investment adviser and partners and representativesof investment advisers registered under these regulations offering investment adviceshall have, at all times, a certification on financial planning or fund or asset or portfoliomanagement or investment advisory services:(a)(b)from NISM; orfrom any other organization or institution including Financial Planning StandardsBoard India or any recognized stock exchange in India provided that suchcertification is accredited by NISM.:Provided that the existing investment advisers seeking registration under theseregulations shall ensure that their partners and representatives obtain such certificationwithin two years from the date of commencement of these regulations:Provided further that fresh certification must be obtained before expiry of the validity ofthe existing certification to ensure continuity in compliance with certificationrequirements.
8 Investment advisers which are body corporate shall have a net worth of not less(1)than twenty five lakh rupees.value of paid up share capital plus free reserves (excluding reserves created out ofrevaluation) reduced by the aggregate value of accumulated losses, deferred expenditurenot written off, including miscellaneous expenses not written off, and capital adequacyrequirement for other services offered by the advisers in accordance with the applicablerules and regulations.6Investment advisers who are individuals or partnership firms shall have net(2)tangible assets of value not less than rupees one lakh:Provided that existing investment advisers shall comply with the capital adequacy
9 The Board on being satisfied that the applicant complies with the requirements specified in regulation 6 shall send intimation to the applicant and on receipt of the payment of registration/renewal fees as specified in Second Schedule, grant certificate of registration in Form B under First Schedule, subject to such terms and conditions as the Board may deem fit and appropriate.
10 The certificate of registration granted under regulation 9 shall be valid for a period of five years from the date of its issue.
11 (1) Three months before the expiry of the period of validity of the certificate, theinvestment adviser may, if he so desires, make an application in Form A for grant ofrenewal of certificate of registration.
11 (2) The application for renewal under sub-regulation (1) shall be dealt with in thesame manner as if it were an application made under sub-regulation (2) of regulation 3for grant of certificate.
12 (1) After considering an application made under regulation 3, if the Board is of theopinion that a certificate should not be granted to the applicant , it may reject theapplication after giving the applicant a reasonable opportunity of being heard.
12 (2) The decision of the Board to reject the application shall be communicated to theapplicant within thirty days of such decision.
12 (3) Where an application for a certificate is rejected by the Board , the applicant shallforthwith cease to act as an investment adviser:Provided that nothing contained in this regulation shall affect the liability of the applicant towards its existing clients under law.
13 The certificate granted under regulation 9 shall, inter alia, be subject to the following conditions:-(a)(b)the investment adviser shall abide by the provisions of the Act and theseregulations;the investment adviser shall forthwith inform the Board in writing, if anyinformation or particulars previously submitted to the Board are found to be false7or misleading in any material particular or if there is any material change in theinformation already submitted;the investment adviser, not being an individual, shall include the words investment adviser in its name:Provided that if the investment advisory service is being provided by a separatelyidentifiable department or division or a subsidiary, then such separatelyidentifiable department or division or subsidiary shall include the words investment adviser in its name;individuals registered as investment advisers shall use the term investmentadviser in all their correspondences with their clients.(c)(d)
14 (1) The Board may recognize any body or body corporate for the purpose ofregulating investment advisers.
14 (2) The Board may, at the time of recognition of such body or body corporate,delegate administration and supervision of investment advisers to such body or bodycorporate on such terms and conditions as may be specified by the Board.
14 (3) The Board may specify that no person shall act as an investment adviser unless heis a member of a recognized body or body corporate and in such event, provisions ofthese regulations and byelaws or articles of such body or body corporate shall apply
15 (1) An investment adviser shall act in a fiduciary capacity towards its clients andshall disclose all conflicts of interests as and when they arise.An investment adviser shall not receive any consideration by way of(2)remuneration or compensation or in any other form from any person other than theclient being advised, in respect of the underlying products or securities for which adviceis provided.
15 (3) An investment adviser shall maintain an arms-length relationship between itsactivities as an investment adviser and other activities.
15 (4) An investment adviser which is also engaged in activities other than investmentadvisory services shall ensure that its investment advisory services are clearlysegregated from all its other activities, in the manner as prescribed hereunder.8(5) An investment adviser shall ensure that in case of any conflict of interest of theinvestment advisory activities with other activities, such conflict of interest shall bedisclosed to the client .
15 (6) An investment adviser shall not divulge any confidential information about itsclient, which has come to its knowledge, without taking prior permission of its clients,except where such disclosures are required to be made in compliance with any law forthe time being in force.
15 (7) An investment advisor shall not enter into transactions on its own account whichis contrary to its advice given to clients for a period of fifteen days from the day of suchadvice.Provided that during the period of such fifteen days, if the investment adviser is of theopinion that the situation has changed, then it may enter into such a transaction on itsown account after giving such revised assessment to the client at least 24 hours inadvance of entering into such transaction.
15 (8) An investment advisor shall follow Know Your Client procedure as specified bythe Board from time to time.
15 (9) An investment adviser shall abide by Code of Conduct as specified in ThirdSchedule.
15 (10) An investment adviser shall not act on its own account, knowingly to sell(10)securities or investment products to or purchase securities or investment product from aclient.
15 (11) In case of change in control of the investment adviser, prior approval from theBoard shall be taken.
15 (12) Investment advisers shall furnish to the Board information and reports as may bespecified by the Board from time to time.
15 (13) It shall be the responsibility of the Investment Adviser to ensure that itsrepresentatives and partners, as applicable, comply with the certification and
16 Investment adviser shall ensure that,-(a) it obtains from the client , such information as is necessary for the purpose of givinginvestment advice, including the following:-(i) age;(ii) investment objectives including time for which they wish to stay invested, thepurposes of the investment ;(iii) income details;(iv ) existing investments/ assets;9(v) risk appetite/ tolerance;(vi) liability/borrowing details.(b) it has a process for assessing the risk a client is willing and able to take, including:(i) assessing a client s capacity for absorbing loss;(ii) identifying whether client is unwilling or unable to accept the risk of loss ofcapital;(iii) appropriately interpreting client responses to questions and not attributinginappropriate weight to certain answers.(c) where tools are used for risk profiling, it should be ensured that the tools are fit forthe purpose and any limitations are identified and mitigated;(d) any questions or description in any questionnaires used to establish the risk a client is willing and able to take are fair, clear and not misleading, and should ensure that:(i) questionnaire is not vague or use double negatives or in a complex languagethat the client may not understand;(ii) questionnaire is not structured in a way that it contains leading questions.(e) risk profile of the client is communicated to the client after risk assessment is done;(f)
17 Investment adviser shall ensure that,-(a) All investments on which investment advice is provided is appropriate to the riskprofile of the client ;(b) It has a documented process for selecting investments based on client s investmentobjectives and financial situation;(c) It understands the nature and risks of products or assets selected for client s;(d) It has a reasonable basis for believing that a recommendation or transaction enteredinto:(i) meets the client s investment objectives;(ii)is such that the client is able to bear any related investment risks consistentwith its investment objectives and risk tolerance;(iii) is such that the client has the necessary experience and knowledge tounderstand the risks involved in the transaction.(e) Whenever a recommendation is given to a client to purchase of a particularcomplex financial product, such recommendation or advice is based upon areasonable assessment that the structure and risk reward profile of financial product10is consistent with client s experience, knowledge, investment objectives, risk
18 (1) An investment adviser shall disclose to a prospective client, all materialinformation about itself including its business, disciplinary history, the terms andconditions on which it offers advisory services, affiliations with other intermediariesand such other information as is necessary to take an informed decision on whether ornot to avail its services.
18 (2) An investment adviser shall disclose to its client , any consideration by way ofremuneration or compensation or in any other form whatsoever, received or receivableby it or any of its associates or subsidiaries for any distribution or execution services inrespect of the products or securities for which the investment advice is provided to the client .
18 (3) An investment adviser shall, before recommending the services of a stock brokeror other intermediary to a client , disclose any consideration by way of remuneration orcompensation or in any other form whatsoever , if any, received or receivable by the investment adviser , if the client desires to avail the services of such intermediary .
18 (4) An investment adviser shall disclose to the client its holding or position, if any, inthe financial products or securities which are subject matter of advice.
18 (5) An investment adviser shall disclose to the client any actual or potential conflictsof interest arising from any connection to or association with any issuer of products/securities, including any material information or facts that might compromise itsobjectivity or independence in the carrying on of investment advisory services.
18 (6) An investment adviser shall, while making an investment advice, make adequatedisclosure to the client of all material facts relating to the key features of the products orsecurities , particularly, performance track record.
18 (7) An investment adviser shall draw the client s attention to the warnings,disclaimers in documents, advertising materials relating to an investment product which
19 (1) An investment adviser shall maintain the following records,-(a) Know Your Client records of the client;(b ) Risk profiling and risk assessment of the client;(c) Suitability assessment of the advice being provided;(d) Copies of agreements with clients, if any;(e) Investment advice provided, whether written or oral;(f) Rationale for arriving at investment advice, duly signed and dated;11(g) A register or record containing list of the clients, the date of advice, nature ofthe advice, the products/securities in which advice was rendered and fee, ifany charged for such advice.
19 (2) All records shall be maintained either in physical or electronic form and preservedfor a minimum period of five years:Provided that where records are required to be duly signed and are maintained inelectronic form, such records shall be digitally signed.
19 (3) An investment adviser shall conduct yearly audit in respect of compliance with theseregulations from a member of Institute of Chartered Accountants of India or Institute of
20 An investment adviser which is a body corporate or a partnership firm shall appoint a compliance officer who shall be responsible for monitoring the compliance by the investment adviser in respect of the requirements of the Act, regulations , notifications , guidelines , instructions issued by the Board.
21 (1) An investment adviser shall redress client grievances promptly .
21 (2) An investment adviser shall have adequate procedure for expeditious grievanceredressal.
21 (3) Client grievances pertaining to financial products in which investments have beenmade based on investment advice, shall fall within the purview of the regulator of suchfinancial product.
21 (4) Any dispute between the investment adviser and his client may be resolvedthrough arbitration or through Ombudsman authorized or appointed for the purpose by
22 Investment advisers which are banks , NBFCs and body corporate providing distribution or execution services to their client s shall keep their investment advisory services segregated from such activities: Provided that such distribution or execution services can only be offered subject to the following:(a) The client shall not be under any obligation to avail the distribution or executionservices offered by the investment adviser.(b) The investment adviser shall maintain arms length relationship between itsactivities as investment adviser and distribution or execution services.(c) All fees and charges paid to distribution or execution service providers by the client shall be paid directly to the service providers and not through the investmentadviser .
23 The Board may suo motu or upon receipt of information or complaint appoint one or more persons as inspecting authority to undertake inspection of the books of accounts, records and documents relating to investment advisers for any of the following reasons, namely: -(a)to ensure that the books of account, records and documents are being maintainedby the investment adviser in the manner specified in these regulations;to inspect into complaints received from clients or any other person, on any matterhaving a bearing on the activities of the investment adviser;to ascertain whether the provisions of the Act and these regulations are beingcomplied with by the investment adviser;to inspect into the affairs of a investment adviser, in the interest of the securitiesmarket or in the interest of investors .
24 (1) Before ordering an inspection under regulation 23, the Board shall give not lessthan ten days notice to the investment adviser.
24 (2) Notwithstanding anything contained in sub-regulation (1), where the Board issatisfied that in the interest of the investors no such notice should be given , it may by anorder in writing direct that the inspection of the affairs of the investment adviser betaken up without such notice.
24 (3) During the course of an inspection, the investment adviser against whom theinspection is being carried out shall be bound to discharge its obligations as provided inregulation 25.
25 (1)It shall be the duty of every investment adviser in respect of whom an inspectionhas been ordered under the regulation 23 and any other associate person who is inpossession of relevant information pertaining to conduct and affairs of such investmentadviser, including representative of investment adviser, if any, to produce to the inspecting authority such books, accounts and other documents in his custody or controland furnish him with such statements and information as the inspecting authority mayrequire for the purposes of inspection.
25 (2)It shall be the duty of every investment adviser and any other associate personwho is in possession of relevant information pertaining to conduct and affairs of theinvestment adviser to give to the inspecting authority all such assistance and shallextend all such co-operation as may be required in connection with the inspection and13shall furnish such information as sought by the inspecting authority in connection withthe inspection .
25 (3) The inspecting authority shall, for the purposes of inspection, have power toexamine on oath and record the statement of any employees, directors, partners orperson responsible for or connected with the activities of investment adviser or anyother associate person having relevant information pertaining to such investmentadviser.
25 (4) The inspecting authority shall, for the purposes of inspection, have power toobtain authenticated copies of documents, books, accounts of investment adviser, from
26 The inspecting authority shall, as soon as possible, on completion of the inspection submit an inspection report to the Board : Provided that if directed to do so by the Board , the inspecting authority may submit an interim report.
27 The Board may after consideration of the inspection report and after giving reasonable opportunity of hearing to the investment advisers or its authorized representatives, issue such directions as it deems fit in the interest of securities market or the investors including,-(a) requiring an investment adviser not to provide investment advice for a particularperiod;(b) requiring the investment adviser to refund any money collected as fees, charges orcommissions or otherwise to the concerned clients along with the requisiteinterest.
28 An investment adviser who -(a) contravenes any of the provisions of the Act or any regulations or circularsissued thereunder;(b) fails to furnish any information relating to its activity as an investment adviser as required by the Board ;14(c) furnishes to the Board information which is false or misleading in any materialparticular;(d) does not submit periodic returns or reports as required by the Board ;(e) does not co-operate in any enquiry, inspection or investigation conducted by the Board ;(f) fails to resolve the complaints of investors or fails to give a satisfactory reply tothe Board in this behalf,shall be dealt with in the manner provided under the Securities and Exchange Board
29 In order to remove any difficulties in the application or interpretation of these regulations, the Board may issue clarifications and guidelines in the form of circulars.
30 The Board reserves the right to alter, modify and overrule any decision, action taken or penalties imposed by the body or body corporate recognized under regulation 14.

Investment_Advisers_Jan21_2013

3 (1) On and from the commencement of these regulations, no person shall act as aninvestment adviser or hold itself out as an investment adviser unless he has obtained acertificate of registration from the Board under these regulations:Provided that a person acting as an investment adviser immediately before thecommencement of these regulations may continue to do so for a period of six monthsfrom such commencement or, if it has made an application for a certificate under sub-regulation (2) within the said period of six months, till the disposal of such application.

3 (2) An application for grant of certificate of registration shall be made in Form A asspecified in the First Schedule to these regulations and shall be accompanied by a non-refundable application fee to be paid in the manner specified in Second Schedule.

4 The following persons shall not be required to seek registration under regulation 3 subject to the fulfillment of the conditions stipulated therefor, (a) Any person who gives general comments in good faith in regard to trends in thefinancial or securities market or the economic situation where such comments donot specify any particular securities or investment product;(b) Any insurance agent or insurance broker who offers investment advice solely ininsurance products and is registered with Insurance Regulatory and DevelopmentAuthority for such activity;(c) Any pension advisor who offers investment advice solely on pension products andis registered with Pension Fund Regulatory and Development Authority for suchactivity;3(d) Any distributor of mutual funds, who is a member of a self regulatory organisationrecognised by the Board or is registered with an association of asset managementcompanies of mutual funds, providing any investment advice to its clientsincidental to its primary activity;(e) Any advocate, solicitor or law firm, who provides investment advice to theirclients, incidental to their legal practise;(f) Any member of Institute of Chartered Accountants of India, Institute of CompanySecretaries of India, Institute of Cost and Works Accountants of India, ActuarialSociety of India or any other professional body as may be specified by the Board ,who provides investment advice to their clients, incidental to his professionalservice;(g) Any stock broker or sub-broker registered under SEBI (Stock Broker and Sub-Broker) Regulations, 1992, portfolio manager registered under SEBI (PortfolioManagers) Regulations, 1993 or merchant banker registered under SEBI(Merchant Bankers) Regulations, 1992, who provides any investment advice to itsclients incidental to their primary activity:Provided that such intermediaries shall comply with the general obligation(s) andresponsibilities as specified in Chapter III of these regulations:Provided further that existing portfolio manager offering only investment advisoryservices may apply for registration under these regulations after expiry of hiscurrent certificate of registration as a portfolio manager;(h) Any fund manager, by whatever name called of a mutual fund, alternativeinvestment fund or any other intermediary or entity registered with the Board ;(i) Any person who provides investment advice exclusively to clients based out ofIndia:Provided that persons providing investment advice to Non-Resident Indian orPerson of Indian Origin shall fall within the purview of these regulations;(j) Any representative and partner of an investment adviser which is registered underthese regulations:Provided that such representative and partner shall comply with regulation 7 ofthese regulations;(k) Any other person as may be specified by the Board .

5 (1) The Board may require the applicant to furnish further information or clarificationregarding matters relevant to investment advisory services for the purpose ofconsideration of the application filed under sub-regulation (2) of regulation 3.

5 (2) The applicant or his authorised representative , if so required, shall appear beforethe Board for personal representation.4

6 For the purpose of the grant of certificate the Board shall take into account all matters which are relevant to the grant of certificate of registration and in particular the following, namely, (a) whether the applicant is an individual or a body corporate or a firm;(b) whether in case the applicant is an individual, he is appropriately qualified andcertified as specified in regulation 7;(c) whether in case the applicant is a body corporate, all the representatives of the applicant who provide investment advice are appropriately qualified and certifiedas specified in regulation 7;(d) whether in case the applicant is a firm or a limited liability partnership, allpartners who are engaged in giving investment advice are qualified and certifiedas specified in regulation 7.(e) whether the applicant fulfills the capital adequacy requirements as specified inregulation 8;(f) whether the applicant , its representatives and partners, if any, are fit and properpersons based on the criteria as specified in Schedule II of the Securities andExchange Board of India (Intermediaries) Regulations, 2008;(g) whether the applicant has the necessary infrastructure to effectively discharge theactivities of an investment adviser;(h) whether the applicant or any person directly or indirectly connected with the applicant has in the past been refused certificate by the Board and if so, thegrounds for such refusal;(i) whether any disciplinary action has been taken by the Board or any otherregulatory authority against any person directly or indirectly connected to the applicant under the respective Act, rules or regulations made thereunder;In case a bank or an NBFC proposes to undertake investment advisory services,whether it has been permitted by Reserve Bank of India and the application ismade through a subsidiary or separately identifiable department or division;In case any body corporate, other than a Bank or NBFC, which proposes toundertake investment advisory services, whether, the application is made througha separately identifiable department or division;In case an entity incorporated outside India undertakes to provide investmentadvisory services under these regulations, whether, it has set up a subsidiary inIndia and whether such subsidiary has made the application for registration;(k)(j)(l)5(m) In case a foreign citizen proposes to undertake investment advisory services,whether the applicant has set up an office in India and proposes to undertakeinvestment advisory services through such office.

7 (1) An individual registered as an investment adviser under these regulations andpartners and representatives of an investment adviser registered under these regulationsoffering investment advice shall have the following minimum qualifications, at alltimes:(a) A professional qualification or post-graduate degree or post graduate diploma infinance, accountancy, business management, commerce, economics, capitalmarket, banking, insurance or actuarial science from a university or an institutionrecognized by the central government or any state government or a recognisedforeign university or institution or association; or(b) A graduate in any discipline with an experience of at least five years in activitiesrelating to advice in financial products or securities or fund or asset or portfoliomanagement.

7 (2) An individual registered as an investment adviser and partners and representativesof investment advisers registered under these regulations offering investment adviceshall have, at all times, a certification on financial planning or fund or asset or portfoliomanagement or investment advisory services:(a)(b)from NISM; orfrom any other organization or institution including Financial Planning StandardsBoard India or any recognized stock exchange in India provided that suchcertification is accredited by NISM.:Provided that the existing investment advisers seeking registration under theseregulations shall ensure that their partners and representatives obtain such certificationwithin two years from the date of commencement of these regulations:Provided further that fresh certification must be obtained before expiry of the validity ofthe existing certification to ensure continuity in compliance with certificationrequirements.

8 Investment advisers which are body corporate shall have a net worth of not less(1)than twenty five lakh rupees.value of paid up share capital plus free reserves (excluding reserves created out ofrevaluation) reduced by the aggregate value of accumulated losses, deferred expenditurenot written off, including miscellaneous expenses not written off, and capital adequacyrequirement for other services offered by the advisers in accordance with the applicablerules and regulations.6Investment advisers who are individuals or partnership firms shall have net(2)tangible assets of value not less than rupees one lakh:Provided that existing investment advisers shall comply with the capital adequacy

9 The Board on being satisfied that the applicant complies with the requirements specified in regulation 6 shall send intimation to the applicant and on receipt of the payment of registration/renewal fees as specified in Second Schedule, grant certificate of registration in Form B under First Schedule, subject to such terms and conditions as the Board may deem fit and appropriate.

10 The certificate of registration granted under regulation 9 shall be valid for a period of five years from the date of its issue.

11 (1) Three months before the expiry of the period of validity of the certificate, theinvestment adviser may, if he so desires, make an application in Form A for grant ofrenewal of certificate of registration.

11 (2) The application for renewal under sub-regulation (1) shall be dealt with in thesame manner as if it were an application made under sub-regulation (2) of regulation 3for grant of certificate.

12 (1) After considering an application made under regulation 3, if the Board is of theopinion that a certificate should not be granted to the applicant , it may reject theapplication after giving the applicant a reasonable opportunity of being heard.

12 (2) The decision of the Board to reject the application shall be communicated to theapplicant within thirty days of such decision.

12 (3) Where an application for a certificate is rejected by the Board , the applicant shallforthwith cease to act as an investment adviser:Provided that nothing contained in this regulation shall affect the liability of the applicant towards its existing clients under law.

13 The certificate granted under regulation 9 shall, inter alia, be subject to the following conditions:-(a)(b)the investment adviser shall abide by the provisions of the Act and theseregulations;the investment adviser shall forthwith inform the Board in writing, if anyinformation or particulars previously submitted to the Board are found to be false7or misleading in any material particular or if there is any material change in theinformation already submitted;the investment adviser, not being an individual, shall include the words investment adviser in its name:Provided that if the investment advisory service is being provided by a separatelyidentifiable department or division or a subsidiary, then such separatelyidentifiable department or division or subsidiary shall include the words investment adviser in its name;individuals registered as investment advisers shall use the term investmentadviser in all their correspondences with their clients.(c)(d)

14 (1) The Board may recognize any body or body corporate for the purpose ofregulating investment advisers.

14 (2) The Board may, at the time of recognition of such body or body corporate,delegate administration and supervision of investment advisers to such body or bodycorporate on such terms and conditions as may be specified by the Board.

14 (3) The Board may specify that no person shall act as an investment adviser unless heis a member of a recognized body or body corporate and in such event, provisions ofthese regulations and byelaws or articles of such body or body corporate shall apply

15 (1) An investment adviser shall act in a fiduciary capacity towards its clients andshall disclose all conflicts of interests as and when they arise.An investment adviser shall not receive any consideration by way of(2)remuneration or compensation or in any other form from any person other than theclient being advised, in respect of the underlying products or securities for which adviceis provided.

15 (3) An investment adviser shall maintain an arms-length relationship between itsactivities as an investment adviser and other activities.

15 (4) An investment adviser which is also engaged in activities other than investmentadvisory services shall ensure that its investment advisory services are clearlysegregated from all its other activities, in the manner as prescribed hereunder.8(5) An investment adviser shall ensure that in case of any conflict of interest of theinvestment advisory activities with other activities, such conflict of interest shall bedisclosed to the client .

15 (6) An investment adviser shall not divulge any confidential information about itsclient, which has come to its knowledge, without taking prior permission of its clients,except where such disclosures are required to be made in compliance with any law forthe time being in force.

15 (7) An investment advisor shall not enter into transactions on its own account whichis contrary to its advice given to clients for a period of fifteen days from the day of suchadvice.Provided that during the period of such fifteen days, if the investment adviser is of theopinion that the situation has changed, then it may enter into such a transaction on itsown account after giving such revised assessment to the client at least 24 hours inadvance of entering into such transaction.

15 (8) An investment advisor shall follow Know Your Client procedure as specified bythe Board from time to time.

15 (9) An investment adviser shall abide by Code of Conduct as specified in ThirdSchedule.

15 (10) An investment adviser shall not act on its own account, knowingly to sell(10)securities or investment products to or purchase securities or investment product from aclient.

15 (11) In case of change in control of the investment adviser, prior approval from theBoard shall be taken.

15 (12) Investment advisers shall furnish to the Board information and reports as may bespecified by the Board from time to time.

15 (13) It shall be the responsibility of the Investment Adviser to ensure that itsrepresentatives and partners, as applicable, comply with the certification and

16 Investment adviser shall ensure that,-(a) it obtains from the client , such information as is necessary for the purpose of givinginvestment advice, including the following:-(i) age;(ii) investment objectives including time for which they wish to stay invested, thepurposes of the investment ;(iii) income details;(iv ) existing investments/ assets;9(v) risk appetite/ tolerance;(vi) liability/borrowing details.(b) it has a process for assessing the risk a client is willing and able to take, including:(i) assessing a client s capacity for absorbing loss;(ii) identifying whether client is unwilling or unable to accept the risk of loss ofcapital;(iii) appropriately interpreting client responses to questions and not attributinginappropriate weight to certain answers.(c) where tools are used for risk profiling, it should be ensured that the tools are fit forthe purpose and any limitations are identified and mitigated;(d) any questions or description in any questionnaires used to establish the risk a client is willing and able to take are fair, clear and not misleading, and should ensure that:(i) questionnaire is not vague or use double negatives or in a complex languagethat the client may not understand;(ii) questionnaire is not structured in a way that it contains leading questions.(e) risk profile of the client is communicated to the client after risk assessment is done;(f)

17 Investment adviser shall ensure that,-(a) All investments on which investment advice is provided is appropriate to the riskprofile of the client ;(b) It has a documented process for selecting investments based on client s investmentobjectives and financial situation;(c) It understands the nature and risks of products or assets selected for client s;(d) It has a reasonable basis for believing that a recommendation or transaction enteredinto:(i) meets the client s investment objectives;(ii)is such that the client is able to bear any related investment risks consistentwith its investment objectives and risk tolerance;(iii) is such that the client has the necessary experience and knowledge tounderstand the risks involved in the transaction.(e) Whenever a recommendation is given to a client to purchase of a particularcomplex financial product, such recommendation or advice is based upon areasonable assessment that the structure and risk reward profile of financial product10is consistent with client s experience, knowledge, investment objectives, risk

18 (1) An investment adviser shall disclose to a prospective client, all materialinformation about itself including its business, disciplinary history, the terms andconditions on which it offers advisory services, affiliations with other intermediariesand such other information as is necessary to take an informed decision on whether ornot to avail its services.

18 (2) An investment adviser shall disclose to its client , any consideration by way ofremuneration or compensation or in any other form whatsoever, received or receivableby it or any of its associates or subsidiaries for any distribution or execution services inrespect of the products or securities for which the investment advice is provided to the client .

18 (3) An investment adviser shall, before recommending the services of a stock brokeror other intermediary to a client , disclose any consideration by way of remuneration orcompensation or in any other form whatsoever , if any, received or receivable by the investment adviser , if the client desires to avail the services of such intermediary .

18 (4) An investment adviser shall disclose to the client its holding or position, if any, inthe financial products or securities which are subject matter of advice.

18 (5) An investment adviser shall disclose to the client any actual or potential conflictsof interest arising from any connection to or association with any issuer of products/securities, including any material information or facts that might compromise itsobjectivity or independence in the carrying on of investment advisory services.

18 (6) An investment adviser shall, while making an investment advice, make adequatedisclosure to the client of all material facts relating to the key features of the products orsecurities , particularly, performance track record.

18 (7) An investment adviser shall draw the client s attention to the warnings,disclaimers in documents, advertising materials relating to an investment product which

19 (1) An investment adviser shall maintain the following records,-(a) Know Your Client records of the client;(b ) Risk profiling and risk assessment of the client;(c) Suitability assessment of the advice being provided;(d) Copies of agreements with clients, if any;(e) Investment advice provided, whether written or oral;(f) Rationale for arriving at investment advice, duly signed and dated;11(g) A register or record containing list of the clients, the date of advice, nature ofthe advice, the products/securities in which advice was rendered and fee, ifany charged for such advice.

19 (2) All records shall be maintained either in physical or electronic form and preservedfor a minimum period of five years:Provided that where records are required to be duly signed and are maintained inelectronic form, such records shall be digitally signed.

19 (3) An investment adviser shall conduct yearly audit in respect of compliance with theseregulations from a member of Institute of Chartered Accountants of India or Institute of

20 An investment adviser which is a body corporate or a partnership firm shall appoint a compliance officer who shall be responsible for monitoring the compliance by the investment adviser in respect of the requirements of the Act, regulations , notifications , guidelines , instructions issued by the Board.

21 (1) An investment adviser shall redress client grievances promptly .

21 (2) An investment adviser shall have adequate procedure for expeditious grievanceredressal.

21 (3) Client grievances pertaining to financial products in which investments have beenmade based on investment advice, shall fall within the purview of the regulator of suchfinancial product.

21 (4) Any dispute between the investment adviser and his client may be resolvedthrough arbitration or through Ombudsman authorized or appointed for the purpose by

22 Investment advisers which are banks , NBFCs and body corporate providing distribution or execution services to their client s shall keep their investment advisory services segregated from such activities: Provided that such distribution or execution services can only be offered subject to the following:(a) The client shall not be under any obligation to avail the distribution or executionservices offered by the investment adviser.(b) The investment adviser shall maintain arms length relationship between itsactivities as investment adviser and distribution or execution services.(c) All fees and charges paid to distribution or execution service providers by the client shall be paid directly to the service providers and not through the investmentadviser .

23 The Board may suo motu or upon receipt of information or complaint appoint one or more persons as inspecting authority to undertake inspection of the books of accounts, records and documents relating to investment advisers for any of the following reasons, namely: -(a)to ensure that the books of account, records and documents are being maintainedby the investment adviser in the manner specified in these regulations;to inspect into complaints received from clients or any other person, on any matterhaving a bearing on the activities of the investment adviser;to ascertain whether the provisions of the Act and these regulations are beingcomplied with by the investment adviser;to inspect into the affairs of a investment adviser, in the interest of the securitiesmarket or in the interest of investors .

24 (1) Before ordering an inspection under regulation 23, the Board shall give not lessthan ten days notice to the investment adviser.

24 (2) Notwithstanding anything contained in sub-regulation (1), where the Board issatisfied that in the interest of the investors no such notice should be given , it may by anorder in writing direct that the inspection of the affairs of the investment adviser betaken up without such notice.

24 (3) During the course of an inspection, the investment adviser against whom theinspection is being carried out shall be bound to discharge its obligations as provided inregulation 25.

25 (1)It shall be the duty of every investment adviser in respect of whom an inspectionhas been ordered under the regulation 23 and any other associate person who is inpossession of relevant information pertaining to conduct and affairs of such investmentadviser, including representative of investment adviser, if any, to produce to the inspecting authority such books, accounts and other documents in his custody or controland furnish him with such statements and information as the inspecting authority mayrequire for the purposes of inspection.

25 (2)It shall be the duty of every investment adviser and any other associate personwho is in possession of relevant information pertaining to conduct and affairs of theinvestment adviser to give to the inspecting authority all such assistance and shallextend all such co-operation as may be required in connection with the inspection and13shall furnish such information as sought by the inspecting authority in connection withthe inspection .

25 (3) The inspecting authority shall, for the purposes of inspection, have power toexamine on oath and record the statement of any employees, directors, partners orperson responsible for or connected with the activities of investment adviser or anyother associate person having relevant information pertaining to such investmentadviser.

25 (4) The inspecting authority shall, for the purposes of inspection, have power toobtain authenticated copies of documents, books, accounts of investment adviser, from

26 The inspecting authority shall, as soon as possible, on completion of the inspection submit an inspection report to the Board : Provided that if directed to do so by the Board , the inspecting authority may submit an interim report.

27 The Board may after consideration of the inspection report and after giving reasonable opportunity of hearing to the investment advisers or its authorized representatives, issue such directions as it deems fit in the interest of securities market or the investors including,-(a) requiring an investment adviser not to provide investment advice for a particularperiod;(b) requiring the investment adviser to refund any money collected as fees, charges orcommissions or otherwise to the concerned clients along with the requisiteinterest.

28 An investment adviser who -(a) contravenes any of the provisions of the Act or any regulations or circularsissued thereunder;(b) fails to furnish any information relating to its activity as an investment adviser as required by the Board ;14(c) furnishes to the Board information which is false or misleading in any materialparticular;(d) does not submit periodic returns or reports as required by the Board ;(e) does not co-operate in any enquiry, inspection or investigation conducted by the Board ;(f) fails to resolve the complaints of investors or fails to give a satisfactory reply tothe Board in this behalf,shall be dealt with in the manner provided under the Securities and Exchange Board

29 In order to remove any difficulties in the application or interpretation of these regulations, the Board may issue clarifications and guidelines in the form of circulars.

30 The Board reserves the right to alter, modify and overrule any decision, action taken or penalties imposed by the body or body corporate recognized under regulation 14.