Q.10: Let us assume there is a product called “A” in the market, which allows investors to invest only in regular mode as the company who has launched Product “A” has registered this product under regular mode with SEBI and not in direct mode.

1) Let us assume there is a product called “A” in the market, which allows investors to invest only in regular mode as the company who has launched Product “A” has registered this product under regular mode with SEBI and not in direct mode. 

2) Investment Advisor named Z Pvt Ltd, who is a SEBI RIA, is planning to advise this product to their advisory clients, where Z Pvt Ltd will be earning a commission on this product. According to the SEBI RIA guidelines, Can Z Pvt Ltd suggest this product to an advisory client and earn commissions under guideline 2 (i)(h) issued by SEBI on September 23, 2020. 

3) Clause 2 (i) (h) says IA shall, wherever available, advice direct plans (non-commission based) of products only. However this product is not available and will not be available in the direct mode. If Z Pvt Ltd can advise and earn a commission on this product – request the rationale and also the necessary items/conditions basis which such product can be advised to an advisory client. If not, please explain the rationale under which clause this advice and subsequent commission earning is disallowed.  

Response:

Regulation 22A of the SEBI (Investment Advisers) Regulations, 2013 talks about ‘Implementation of advice or execution”

In clause (2) it is very clear that “Investment adviser shall provide implementation services to its advisory clients only through direct schemes/products in the securities market.”

Therefore, in your query’s case, if the product ‘A’ is not available in direct mode, then you should leave it to the client to get it, but you cannot get it for your client.

— Replied by: ARIA forum expert, CA. Sanjay Kadel (sk@sanjaykadel.com)

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