On Friday, the Securities and Exchange Board of India (SEBI) issued a circular announcing measures to strengthen the conduct of Registered Investment Advisors (RIA). Accordingly, RIAs have been banned from giving free trials of their services or accepting part payments for their services.
The market regulator said that RIAs will only be permitted to give financial advice after completing risk profiling of the client and ensuring the suitability of the product.
"It has come to the notice that investment advisors are providing advice on free trial basis without considering the risk profile of the client. Hence the IAs shall not provide free trial for any products/services to prospective clients. Further, IAs shall not accept part payments (where some part of the fee is paid in advance) for any product/service," SEBI said.
Further, RIAs must display complaints against them and its status on their own websites and are allowed to accept payments through banking channels only.
"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. To bring transparency in dealing with the clients, IAs shall accept fees strictly by account payee crossed cheques or demand draft or by way of direct credit into their bank account," SEBI said.
RIAs are a type of intermediary created by SEBI in 2013 and are authorized to give investment advice on all types of financial products in return for a fee.
The measures were issued to bring more transparency in the process and enable investors to make informed decisions before availing the services. These will be effective from 1 January 2020.