MFDs having stock broking license can tie-up with registered investment advisors to offer advisory services and earn referral fees, clarified SEBI.
The regulator said that brokers will have to adhere to certain conditions when offering advisory service to their clients.
The conditions listed by SEBI are:
a. The RIA business should not involve any personal financial liability
b. The broker has to maintain high standards of service
c. They also have to maintain segregation of business to avoid any potential conflict of interest
The clarification from SEBI came in response to a letter seeking the regulator's informal guidance on the matter. In the letter, HDFC Securities (HSL) sought to know if it can tie up with third party RIA to offer their services to its clients.
"In absence of personal financial liability, the said referral activity would not attract prohibition and there is no bar for HSL, acting as a broker/distributor to tie up with third party RIAs to offer advice to its distribution clients.”
