The so-called Securities & Exchange Board of India (Investment Advisers) Regulations, 2013, requires investment advisers to obtain from the Securities & Exchange Board (SEBI) a “certificate of registration”, unless they fall into one of several categories of exempt individuals. These include insurance agents, insurance brokers and pension advisers who offer investment advice “solely” in their specific area of insurance or pension products, and who are already registered with the relevant Indian insurance or pension fund industry regulator.
As do similar types of regulations recently introduced in other countries, the new Indian rules set out how advisers should operate, and how they are to be held accountable for the advice they give.
Advisers will also be required to segregate their advisory activities from others, such as distribution.
The new regulations, which may be viewed by clicking here, will come into force 90 days from their publication three days ago in the Official Gazette of India.
An article on www.livemint.com, an Indian financial news website affiliated with the Wall Street Journal, noted that the move by the SEBI to regulate advisers came in the wake of “instances of fraud committed by several entities in the guise of investment [advice]", and a "perpetual debate among the country’s financial regulators over the jurisdiction of advisers, as the services provided by them straddle a wide range of products”.
‘Regulatory kudzu’
India’s introduction of regulations to boost the standards of investment advice follow similar moves by such other countries as the UK, Australia, and, most recently, Singapore. As reported, a review panel set up last year to come up with ideas for improving the standards of investment advice on offer in that Southeast Asian city-state issued its long-awaited list of recommendations last week. They are expected to begin being implemented, following a consultation period, over the next few years.
Chris Lean, a Czech Republic-based adviser with the Prague-based advisory firm Square Mile Financial and an advocate of high standards for advisers, said the wiggle-room provided by the exemptions in the new Indian regulations seemed potentially wide for those advisers keen to make use of it, at least by the standards of some other jurisdictions, such as the UK. Lean’s own qualifications include being an Associate of the Personal Finance Society.
"It seems that there are exemptions for pension and insurance advisers and – as long as investment advice is ‘incidental’ to their primary services – distributors of mutual funds, lawyers, stockbrokers, fund managers and accountants,” Lean said, "yet how is that ‘incidental’ service is quantified is unclear.
“It is positive to see that there appear to be strict qualification requirements for those that register as investment advisers, seemingly at post-graduate level or graduate level, providing that the individual has at least five years relevant investment experience.
“However, since there appear to be so many exemptions [to the new Indian regulations], there [could] be a tendency to stay within the exemptions, not obtain qualifications, and continue as before.
“I suspect that the higher net worth end of the Indian market will be the sector that benefits most from these proposals, as qualified, fee-based advice will price most of the population out of the registered adviser market."
