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Business News/ Markets / Stock Markets/  Investment advisers cannot earn a commission by referring clients: Sebi
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Investment advisers cannot earn a commission by referring clients: Sebi

This clarification from the markets regulator came after iFast Financial India Private Ltd sought clarity on some aspects of its regulations concerning Registered Investment Adviser

iFast Financial had asked the regulator if an adviser who refers clients to another party can charge a referral fee if he gives clients full disclosure.. (Reuters)Premium
iFast Financial had asked the regulator if an adviser who refers clients to another party can charge a referral fee if he gives clients full disclosure.. (Reuters)

Sebi has clarified that its regulations don't allow investment advisers to charge referral fees if they refer a client to another party.

The clarification from the markets regulator came after iFast Financial India Private Ltd, an online platform that helps investors, distributors and registered advisers, sought clarity on some aspects of its regulations concerning Registered Investment Adviser (RIA).

iFast Financial had asked the regulator if an adviser who refers clients to another party can charge a referral fee if he gives clients full disclosure. For example, can an adviser refer the client to a chartered accountant or an overseas adviser?

"An IA can undertake an activity of providing investment advice for a consideration, and the same cannot be construed to include referral fees as envisaged (in the query)," said the regulator.

The company also sought clarity on whether an investment adviser, who is also a stockbroker, can charge a nominal fee of one paisa as brokerage to clients on direct equities traded through him. iFast raised the query as any contract without consideration is void as per the Indian Contracts Act.

According to Sebi, the investment adviser cannot charge a brokerage as "the said requirement is fulfilled in the current framework".

The third query was about advisers offering services to non-residents Indian (NRI) and a Person of Indian Origin (PIO). The company asked whether a person needs to register with Sebi if he is providing services to NRIs and PIOs.

The regulator said that as long as the adviser is servicing exclusively to foreign nationals, he/she doesn't need to register with the regulator as an RIA (registered investment adviser). But the same may not hold true for NRIs as they are Indian citizens.

Sebi has also clarified on educational qualifications of an investment adviser. A law degree is not part of the minimum qualification as prescribed under the investment adviser regulations. The same holds for a graduate degree from a foreign university. As part of the specified qualification, the person will need either a professional qualification or a postgraduate degree in a specific field to qualify.

(Do you have personal finance queries? Send them to mintmoney@livemint.com and get them answered by industry experts)

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Published: 30 Jun 2021, 06:15 PM IST
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