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In an FAQ on registered investment advisers (RIAs) issued today, SEBI has clarified mutual fund distributors can sell other capital market products like shares, bonds, PMS and AIFs but if it involves investment advice, they need to obtain RIA license.
SEBI said, “If a distributor of mutual fund is engaged in providing investment advice to general investors other than or in addition to mutual fund clients, and in securities (such as shares, debentures, bonds, derivatives, securitised instruments, structured products, units of AIF, REIT, InvIT, etc.) other than or in addition to mutual fund schemes distributed by him, then such distributor is required to get registration as an IA.”
For instance, if a distributor recommends a client to buy a particular stock, he will have to obtain RIA license. However, if a distributor simply facilitates transaction in XYZ stock without giving any advice, he need not obtain RIA license.
SEBI has also defined incidental advice. SEBI said, “Incidental activity with respect to distribution of mutual funds means providing basic advice pertaining to investment in mutual fund schemes limited to such schemes/ products being distributed by a mutual fund distributor to his clients/ investors or any other mutual fund product.”
Further, SEBI has issued a list of professionals who are exempted from obtaining RIA license and can give incidental advice:
- Mutual fund distributors
- Insurance agents and brokers
- Pension advisor
- CAs and other professionals like members of ICSI, ICAI, ICWAI and ASI
- Stock brokers
- Portfolio managers
- Merchant bankers
- Fund managers
- Corporate advisory services like IPOs, mergers and acquisitions
However, CAs can only talk about ELSS. If such members are engaged in providing investment advisory services, they will have to obtain RIA license.
The market regulator has also clarified that a person acting in multiple capacities such as mutual fund distributor, insurance agent and pension advisor are also exempted.
