SEBI has come out with code of conduct for investment advisors in which it has asked registered investment advisors (RIAs) not to accept advisory fee in cash. Instead, the market regulator has directed RIAs to accept fees through cheque, demand draft, NEFT, RTGS, IMPS and UPI.
In a circular issued today, SEBI said, “It is observed that investment advisers are receiving advisory fee in the form of cash deposit in their bank accounts or through payment gateways which does not provide proper audit trail of fees received from the clients.”
The other things the code of conduct stipulates are
RIAs will have to strictly ensure risk profiling and product suitability
RIAs can no longer give advice on free trial basis i.e. advising without considering risk profile of client free on cost (happens largely on phone calls)
To obtain written consent of clients on completed risk profile through registered email or physical document
To highlight their mobile number on homepage of their website. Such a phone number has to be prominently displayed (without scrolling) using font size of 12
To highlight details on status on complaints on website and mobile app prominently
All these guidelines will come into effect from January 01, 2020.
Industry experts believe that most of the regulations will only affect advisory firms who are primarily into stock advisory and trading business. In fact, many of these advisors do not deal with mutual funds at all. Most of these companies are based out of Indore and Bhopal.
