Can a registered Investment Adviser provide research report on companies?

A SEBI registered Investment Adviser (RIA) recently wrote to me with a query:

If a registered investment adviser is also issuing research reports to its clients, does she need to get registered as a Research Analyst (RA) too?

I believe this is an obvious point of confusion for most RIAs or RAs.

As a SEBI registered Investment Adviser, you offer advice in the form of model portfolio of equity stocks or mutual funds. Along with the portfolio (i.e. names of stocks / mutual funds) you may also provide a detailed report on a particular stock / mutual fund to your clients, including ongoing analysis and updates on their performance.

Now, should you be registering under both the regulations and incur additional costs, as also take on compliance burden?

Let me share my views with you. Read on.

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We should first understand what is a research report.

SEBI has given a simple definition in RA regulations. It defines research report as:

any written or electronic communication that includes analysis or recommendation or an opinion on securities or public offer, providing a basis for investment decision….

However, there is a list of certain communication which are excluded from definition of research report. One of them is “periodic reports or other communications prepared for unit holders of mutual fund or alternative investment fund or clients of portfolio managers and investment advisers.”

So, although you may be providing research reports or analysis or investment rationale in form of a report to your clients, these documents do not come under definition of a “research report” as envisaged by SEBI RA regulations.

Hence, reports issued by investment advisers to their clients will not come under purview of RA regulations and IAs need not register again with SEBI as RA.

Note: Along with RIA, if you voluntarily want to get registered with SEBI as RA, SEBI may grant you the license.

The next question is –  If a RIA is issuing research reports to GENERAL PUBLIC, does she need to get registered as a RA?

If an IA provides research reports or gives buy / sell / hold recommendations or price target to general public or investors (i.e. other than her clients), with or without fees, she will be considered as an RA.

As per RA regulations, no person can act as a research analyst unless registered with SEBI. However, SEBI has considered practical scenarios and has included certain exemptions to registration as a research analyst.

As per RA regulations, “an investment adviser, credit rating agency, asset management Company or fund manager, who issues research report or circulates/distributes research report to public or its director or employee who makes public appearance, shall not be required to seek registration under regulation 3, subject to compliance of Chapter III of these regulations.”

It means that though Investment Adviser issuing research reports to public will come under purview of RA Regulations, she need not go through the entire registration process with SEBI again. However, she has to comply with requirements of Chapter III of RA regulations. This compliance alone is enough for your purpose.

Is that clear now? Great!

Here’s more on the difference between RIA and RA. Click here to read on. 

If you have any further queries, reach me at kruti@cskruti.com.