In a step down from its earlier proposal, the Securities and Exchange Board of India (SEBI) has segregated the advisory and distribution activities. By amending the SEBI Investment Advisers Regulations 2013, the regulatory body has allowed investment advisors to decide charges.
For instance, if your investment advisor is an individual, then he can only offer one of the services from the above two. He can either offer investment advisory or distribution services to you, however, the commission can only be earned from one service.
If he offers you distribution services, he can earn a commission from mutual funds. If suppose, after a thorough analysis, you decide to take distribution services then he cannot charge you an advisory fee.
Also, as per the latest amendment, the family of an investment advisor can’t offer another service and charge for both the services. If a person is opting for one service from one advisor and another service from a different advisor, then he might have to pay both the charges. For example, many advisors used to offer c to their respective clients and then their clients used to purchase funds from a different firm, often run by the advisory’s family but not anymore.
As per the recent SEBI’s guidelines, it is not permissible for family members of investment advisors to work in the same intermediary business.
This is likely to benefit more advisors as this ends the monopoly and even if the client does go to both the advisor and distributor from the same family, then they can only earn from one of their services.
To push more individual advisors to become corporate advisors, SEBI has directed individual financial advisors having more than 150 clients to apply for a corporate license. These rules will be effective from October 3 and are likely to foster the employment and growth of small and aspiring advisors.