In a clarification sought by a national distributor, SEBI has said that while corporate RIAs can offer both the services – advisory and commission to investors, their employees cannot offer both the services.
Simply put, corporate RIAs are required to create two separate departments to execute advisory and commission business. This also means that employees of one department cannot be associated with another department since both the departments have to maintain arm’s length distance in letter and spirit.
Citing its regulation, SEBI said that non-individual RIAs will have to maintain client level segregation at a group level i.e. the same client cannot be offered both advisory and distribution services within the group of the nonindividual entity.
SEBI said, “A client can either be an advisory client where no distributor consideration is received at the group level or distribution services client where no advisory fee can be collected from the client at the group. Group for this purpose will be as per the provisions of Companies Act, 2013. Similar provisions may be made for partnerships/LLP. Further, non-individual IA shall maintain arm’s length relationship between its activities as investment adviser and distributor by providing advisory through a separately identifiable department or division SIDD.”
This will increase the cost of doing business for non-individual RIAs. Also, it will have huge impact on national distributors who plan to empanel MFDs to offer both services.
