On 17 December 2024, the Securities and Exchange Board of India (SEBI) introduced comprehensive amendments to the Research Analysts (RA) and Investment Advisers (IA) Regulations, marking a significant overhaul of the financial advisory landscape. The amendments aim to address long-standing challenges in the investment advisory ecosystem and make the profession more accessible and transparent.
A similarity across both regulations is the significant relaxation of qualification barriers. For RAs and IAs, SEBI has lowered the entry-level educational requirements. Previously demanding post-graduate degrees with extensive work experience, the new regulations now accept a graduate degree in any discipline. This modification aims to broaden the talent pool, lower entry barriers and encourage more professionals to enter the profession.
Both sets of regulations introduce an innovative part-time professional concept. RAs and IAs can now practice part-time, while maintaining their primary professional engagements. This approach is capped identically, with both categories limited to 75 clients. Part-time professionals must explicitly disclose their part-time status in all client communications, ensuring transparency and managing client expectations. Professionals such as chartered accountants, insurance agents, teachers, lawyers and doctors can now potentially become part-time investment advisers.
For RAs, the definition of research services has been significantly broadened. It now encompasses preparing and publishing research reports, providing research analysis, making buy/sell/hold recommendations, offering price targets, providing opinions on public offers, recommending model portfolios, and issuing trading calls. This expansive definition ensures comprehensive regulatory oversight of various activities under RA.
A critical uniform requirement across both regulations is the mandatory disclosure of artificial intelligence (AI) tool usage. RAs and IAs must now explicitly communicate the extent of AI tools employed in their services. This provision reflects SEBI's commitment to technological transparency and helping clients understand the technological underpinnings of financial advice. Additionally, IAs must clearly communicate when their services relate to products or services that are outside SEBI's regulatory purview.
SEBI has introduced greater flexibility in fee structures for both categories. IAs and RAs can now more easily switch between different fee charging methods, removing previous restrictive waiting periods. This allows professionals to adapt their business models more dynamically to client needs and market conditions. Additionally for IAs, the amendments address fee flexibility, allowing investment advisers to switch between percentage-based and fixed-fee charging methods without the previous 12-month restriction. This provides advisers with more operational flexibility in structuring their fee models.
Instead of stringent networth requirements, both regulations now mandate a deposit system. The deposit amount varies based on the number of clients, creating a scalable compliance mechanism that grows proportionally with the professional's practice.
Both sets of amendments introduce strict guidelines on service segregation. RAs and IAs are now required to maintain clear boundaries between research, advisory, and distribution services. The regulations explicitly limit advisory services to securities and financial instruments regulated by financial sector regulators, preventing potential conflicts of interest.
Earlier a significant provision limited advisory services to securities and financial instruments regulated by financial sector regulators. Advice on areas like wills, estate planning, gold, and real estate were either avoided or provided through separate legal entities. In latest amendments, IAs who provide such services shall disclose to the client that such products or services outside the regulatory purview and no recourse from the SEBI shall be available to such clients for any grievance arising from these products and services.
SEBI has streamlined certification processes too. RAs and IAs must obtain and maintain NISM (National Institute of Securities Markets) certifications. However, the new regulations replace repeated full examinations with periodic refresher courses, acknowledging the evolving nature of financial markets and reducing administrative burden.
These amendments reflect SEBI's approach to addressing the criticism that the current regulations are too stifling. With only 995 registered IAs for a vast investor base, SEBI had to do something to increase the IA population without relaxing the regulatory oversight.