SEBI Investment Advisers Regulations, 2013

The SEBI Investment Advisers Regulations, 2013 (hereafter “the Regulations”) apply to any person or entity that provides personalised investment advice or recommends securities to clients for a fee, irrespective of the advisory channel (online, offline, or hybrid).

These Regulations supersede earlier advisory guidelines and are applicable across all market segments – equity, debt, mutual funds, commodities and derivatives. The intent is to bring uniformity, transparency and accountability to the advisory business, thereby protecting retail investors from mis‑selling and conflicts of interest.

For the NISM exam, remember that the Regulations do NOT cover distributors of mutual funds who merely sell products without advice, nor do they apply to research analysts whose role is limited to market commentary. Distinguishing between “adviser” and “distributor” is a frequent exam focus.

• Adviser – provides advice for a fee.
• Distributor – sells products without personalised advice.

Investment Adviser – any person or entity who, for a consideration, advises a client on securities, asset allocation, portfolio construction, or any combination thereof, and who is registered with SEBI.

Client – any natural or juridical person who receives advice from a registered adviser. The Regulations differentiate between retail, high‑net‑worth and institutional clients, each with specific disclosure norms.

Assets Under Advice (AUA) – the aggregate market value of all securities for which the adviser provides advice, irrespective of whether the adviser has discretionary control. AUA is the basis for many compliance calculations, including net‑worth thresholds and fee disclosures.

• Understanding these terms helps you answer definition‑type questions accurately.
• Mix‑ups between “AUA” and “AUM” (Assets Under Management) are common traps.

Registration is a three‑step process: (1) Submission of Form A with all required documents, (2) Verification by SEBI, and (3) Issuance of a registration certificate. The applicant must furnish proof of net‑worth, fit‑and‑proper certificates, KYC of the firm, and a detailed compliance manual.

The SEBI portal generates a unique Registration Number (RN) that must be displayed on the adviser’s website, marketing material and client agreements. The RN remains valid for five years, after which renewal is mandatory, subject to a fresh compliance audit.

Exam tip: Questions often ask for the order of steps or the documents required at each stage. Remember the mnemonic “N‑F‑K” – Net‑worth, Fit‑and‑Proper, KYC – to recall the primary document clusters.

• Form A – primary application form.
• Form B – declaration of fit‑and‑proper status.

To ensure financial stability, the Regulations prescribe a minimum net‑worth for advisers. An individual adviser must maintain a net‑worth of at least INR 5 crore, while a body corporate must have INR 10 crore. The net‑worth is calculated as total assets minus total liabilities, as defined under the Companies Act, 2013.

If an adviser’s net‑worth falls below the threshold, SEBI can suspend or cancel the registration. The net‑worth must be verified annually through a certified Chartered Accountant’s report, which is part of the renewal filing.

For NISM, remember the two distinct thresholds (5 cr for individuals, 10 cr for firms) and the annual verification requirement. Questions may present a scenario where an adviser’s liabilities increase; you’ll need to determine whether the net‑worth still complies.

• Net‑worth is a *balance‑sheet* concept, not cash on hand.
• Only *unencumbered* assets count toward the calculation.

SEBI mandates that every adviser and key personnel satisfy "fit‑and‑proper" standards. This includes: (a) educational qualifications (minimum of a graduate degree in finance, economics, or a related field), (b) relevant professional experience (at least two years of advisory experience), and (c) a clean regulatory record (no convictions or disciplinary actions).

Advisers must also disclose any material interest in securities they recommend, thereby mitigating conflicts of interest. The compliance manual must outline procedures for monitoring and managing such conflicts.

Exam focus: Questions may present a candidate with a law degree but no finance background and ask whether the person meets the fit‑and‑proper criteria. The answer is *No* – a finance‑related qualification is mandatory.

• Fit‑and‑Proper is assessed at the time of registration and during each renewal.
• Any breach can lead to immediate suspension.

Registered advisers must file periodic returns with SEBI, including the annual compliance report, net‑worth certificate, and details of client complaints. They must also disclose the fee structure, risk profile, and any material conflicts in a written client agreement before providing advice.

Record‑keeping is stringent: advisers must maintain client‑wise records of advice rendered, transaction logs, and performance reports for a minimum of five years. These records must be stored in a manner that allows SEBI inspectors to retrieve them within 48 hours of a request.

From an exam perspective, remember the five‑year retention period and the requirement to disclose both *direct* and *indirect* fees. Questions may ask which document is *not* mandatory for annual filing – the answer is typically the client‑wise performance report, which is retained but not filed with SEBI.

• Annual compliance report is filed through SEBI’s online portal.
• Any change in fee structure must be communicated to existing clients at least 30 days before it becomes effective.

The Regulations classify clients into three segments: Retail, High‑Net‑Worth (HNW) and Institutional. Retail clients receive a higher level of disclosure, including a detailed risk‑profiling questionnaire and a suitability statement. HNW and Institutional clients may receive more bespoke advice, but the adviser must still document the basis of recommendation.

Advisory services are broadly categorised as: (a) Portfolio Management Services (PMS), (b) Financial Planning, (c) Non‑Discretionary Advice, and (d) Discretionary Advice. Each category has distinct fee‑structures and disclosure norms. For example, PMS requires a written contract specifying the discretionary powers granted to the adviser.

Exam tip: A typical question will present a client type and ask which disclosure is *mandatory*. Always link the client segment to the appropriate requirement – retail clients need a risk‑profile, while institutional clients need a suitability statement.

• Retail – highest disclosure burden.
• HNW – moderate disclosure.
• Institutional – lowest disclosure, but still requires suitability.

SEBI requires that all fees – whether fixed, performance‑based, or a combination – be disclosed in writing before any advice is given. The fee schedule must be clear about the basis of calculation (e.g., percentage of AUA, per‑transaction charge, or a fixed annual amount).

Advisers are prohibited from charging hidden fees or levying charges that are not reflected in the client agreement. Any change in the fee structure must be communicated at least 30 days in advance and the client must acknowledge the change in writing.

From a testing standpoint, remember that the term "transparent fee" in SEBI parlance means: (i) disclosed in advance, (ii) no hidden charges, and (iii) fee basis clearly mentioned. Questions may present a fee clause and ask if it complies with SEBI – look for these three elements.

• Performance‑based fees must be capped at a reasonable level as per SEBI guidelines.
• Advisers cannot receive commissions from product issuers for advice rendered.