Disclosures under SEBI Investment Advisers Regulations

SEBI has always insisted on transparency in doing business. It has mandated various disclosures in almost all its regulations, in line with its mission statement to protect the interest of investors. The latest one mandates the Mutual Fund Companies to disclose the commissions given to the distributors, in all the mutual fund statements.

In my earlier post, I have mentioned how SEBI is tackling the conflict of interest between the investment advisory and distribution business. One of the ways it has proposed is to get the Investment Advisers to separate their advisory from the distribution activities through a separate subsidiary. Another one, is the mandatory disclosures to the client.

In this post we will see all the disclosures to be made by an Investment Adviser to its client.

Let us start.

DISCLOSURES BY AN INVESTMENT ADVISER TO THE CLIENT

#1. Disclosure of Material Information about Investment Adviser

An Investment Adviser has to disclose information about itself, its Directors, its associates, details of its business activities, and any disciplinary action taken by any regulator in the past.

SEBI has included the words “and such other information as is necessary to take an informed decision on whether or not to avail its services”. This puts the responsibility on the Investment Adviser to disclose any and all such information as may be relevant to the client to take a decision for availing the services.

#2. Disclosure of Conflict of Interest

Do you provide services other than advisory services like distribution services?

Are you associated with other intermediary like a distributor of mutual fund or a stock broker?

Are you from the same group company as the Mutual Fund Company?

If yes, you need to disclose the same.

The reason being there is a probability of bias while providing the advisory services. An Investment Adviser should act in fiduciary capacity for its clients.

You have to disclose any present or future conflict of interest to your client while providing advisory services.

#3. Disclosure about holding position

You may have invested your surplus funds in securities like mutual funds or equity shares. You, as an Investment Adviser, should disclose to the client if the same securities are recommended to your client.

#4. Disclosure about products

SEBI has put the responsibility on the Investment Adviser to make the client aware about the features of products / securities recommended to the client. The features include the risk associated with the product, the performance track record, etc.

You have to also draw your client’s attention to the warnings and disclaimers in the advertisement material of the product.

It is recommended that disclosures are included in the agreement with the clients so that clients can read and accept the same.

Just to reiterate, in addition to client awareness, these disclosures are necessary to prevent any future trouble with SEBI related compliance audits that it may carry out from time to time.

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If you are looking for professional support in ensuring that you are fully complied with SEBI Investment Advisers Regulations, write to me at kruti@cskruti.com.