Should I register as an Investment Adviser or a Research Analyst? (Updated)

“Should I register with SEBI as an Investment Adviser or a Research Analyst?” Raj asked me. He had come over to discuss his plan for a startup which gives services related to stock advisory.

He was aware that Securities and Exchange Board of India (SEBI) recently notified the amendments to the regulations for Investment Advisers (RIA) and Research Analysts (RA).

Now, he was confused which one applied to him.

I asked him one basic question about his business idea. “Is your advice going to be the same for a large number of investors or are you going to give personalised advice to an individual?”

He thought for a moment and said, “the later one”. I told him that SEBI Investment Advisers Regulations will apply to him.

Feeling the curiosity in his response, I further explained to him, “SEBI Investment Advisers Regulations apply to ‘one-to-one advice’ model or giving personalised investment advice. It regulates the financial planners who make comprehensive goal based financial plans. These advisors have to, and most of the financial planners do, assess the risk of their clients and make a financial plan which is suited only to that particular client. The advice is for the benefit of that client. Hence, the investment advice may vary from client to client.

On the other hand, SEBI Research Analyst Regulation apply to entities or individuals who are providing research-based advice or recommendations or trading calls which any investor can follow as per his / her own decision. So, the principal here is ‘one-to-many advice’ model. The recommendation is given not keeping in mind any particular client but is based on the opinion of the research analyst.”

“Got it!” said Raj. “Since my advice is going to be customised as per the client’s financial needs, Investment Advisers regulations will apply.”

I nodded.

He further asked, “I am also planning to recommend a portfolio of stocks and suggesting percentage of allocation of one’s money to each stock, something like a model-portfolio. As of now there is only one portfolio. So, the portfolio will be the same for all. Under which regulations does this service fall?”

I answered, “If this is going to be the same portfolio for whoever subscribes for it, then it will fall under the Research Analyst Regulations. So, model portfolio service will fall under the RA Regulations.”

“What if I provide mutual fund recommendations too?” he added.

I said, “Research Analyst Regulations apply to providing research reports and buy / sell / hold recommendations on securities like stocks, mutual funds, debentures, derivatives, etc.”

I smiled and nodded again.

His curiosity was building up. He asked, “Okay, tell me, which regulations apply to an entity, which has different model portfolios and as the client provides inputs about his personal details, like income, risk appetite, etc, a portfolio is recommended to the client? Say, similar to robo advisory?”

“In my view, here too, SEBI Investment Advisers regulations apply, as the advice is dependent on the client’s inputs. Yes, I agree that two clients may be recommended the same portfolio, but this can happen in financial plans too!” I mentioned.

“Okay. What if as an individual investment adviser, I also writes research reports. I will do it for my clients, after all. And then I might also decide to distribute it for general investors for a fee. Will both the regulations apply in this case?”

I was glad he asked that question.

I answered, “Yes. If the individual is going to share reports for a fee, then both the regulations will apply.”

“Do you mean as an individual, I can register as RIA as well as RA?”

“Yes, SEBI has allowed individuals to register as both – IA and RA. However, you need to clearly segregate the activities. By that I mean, your clients cannot overlap. And of course, comply with the requirements under the respective licenses”, I answered.

“Kruti, as you know I am planning to provide financial planning services. Now, we are clear that IA regulations will apply to me. But you also know that this is a tough business and not many people in India are willing to pay fees to a financial planner. I was thinking of a few options here to start with:

• One, what if I become a mutual fund distributor as well.
• Two, I take up some job for such time till this business reaches some level.
• Three, I provide training to investors to invest in securities market through a course, may be introduce a couple of courses and charge a fee for them.

Are either of these options possible along with the SEBI license?”

I took a few moments to understand his concerns and then replied, “See Raj, it is very clear that you cannot carry on any activity along with your license if there is any conflict of interest. The same is the case for RA license as well. So, you cannot be a mutual fund distributor if you are an RIA or RA.”

The good news is SEBI has introduced a concept called ‘part-time RIA or RA’.

This is an option for people like you, who are planning to carry on other business activity along with RIA or RA activities. However, you also need to take the following into consideration:

• One, if you are thinking of a job, ensure that it cannot be a conflicting activity. You can take up a job in an IT firm or manufacturing business, etc. Also, you need to provide to SEBI a NOC from your employer.
• Two, in case you opt for a part-time RA or RIA license, then you can service only 75 clients at any given point. If you exceed or plan to exceed that number, you have to apply for a fulltime RA or RIA license and discontinue your employment or other business activity.

So yes, you can take up a non-conflicting job or provide an educational course along and register as a part-time RIA.

I smiled and said, “Yes of course! Let’s starts this asap.”

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Is your case different from the above? Do share your query, and I will be happy to help you. If you need any help in getting yourself registered with SEBI as a Research Analyst / Investment Adviser, you can write to me at kruti@cskruti.com

Note: The views expressed above are my views based on my interpretation of the regulations. In case of any concerns, it is best to confirm your case with SEBI before you make the application.