Family of an individual investment adviser
Under SEBI's Investment Adviser Regulations, the individual adviser themselves, together with their spouse, children and parents — the group a compliance rule reaches when it says "family."
In plain language
A rule aimed only at an individual adviser is easy to sidestep. Route the conflicted activity through a spouse or a child instead, and stay technically compliant. SEBI's rules close this gap. They define who counts as family.
For an individual Investment Adviser, that definition covers the adviser, their spouse, their children and their parents. Any rule set at the "family level" reaches every one of these people. It is not the adviser alone who must follow it.
How it works
The regulations define it precisely: "family of an individual investment adviser" shall include individual investment adviser, spouse, children and parents.
This definition is the basis for the client-level segregation rule: the family of an individual investment adviser is barred from providing distribution services to a client that the adviser is advising, and the adviser in turn cannot advise a client who is receiving distribution services from one of these family members. It also underlies the no-consideration rule for execution services through direct schemes — no commission may be received at this family level either.
A worked example
An individual Investment Adviser advises Mr Kumar on his Rs 60,00,000 portfolio. The adviser's spouse runs a separate mutual fund distribution business. Because the spouse falls within the "family of an individual investment adviser" definition, she is barred from distributing mutual fund units to Mr Kumar while he remains her husband's advisory client — even though she is not the adviser herself and holds a separate registration.
Why NISM asks about it
Chapter 18 (Key Regulations), section 18.6.1 (Definitions), states this definition alongside "family of client," and section 18.6.15 (Client level segregation) applies it to bar the family from providing distribution services to the adviser's own clients. Expect a question testing exactly who is, and is not, covered — a sibling, for instance, is not on this list.
Common exam traps
- The list is spouse, children and parents — no more. A sibling, cousin, or a child's spouse falls outside this specific regulatory definition, even in everyday usage they might be called "family."
- Do not confuse this with family of client, a separate, similarly worded definition that describes the client's own family, not the adviser's.
Check yourself
1.May an individual investment adviser provide distribution services if the two activities are kept in separate books?
- a)Yes, provided arm's length separation is maintained
- b)No, an individual investment adviser shall not provide distribution services at all
- c)Yes, provided the client consents in writing
- d)Yes, provided no advisory fee is charged to that client
Show the answer
Answer: (b) No, an individual investment adviser shall not provide distribution services at all
The rule is absolute: AN INDIVIDUAL INVESTMENT ADVISER SHALL NOT PROVIDE DISTRIBUTION SERVICES. Further, the family of an individual investment adviser shall not provide distribution services to the client advised by the individual investment adviser, and no individual investment adviser shall provide advice to a client who is receiving distribution services from other family members. Segregation at group level, with a separately identifiable department, is the rule for non-individuals.
Where this is taught
Free preparation for NISM Series X-ARelated terms
- Direct and regular plansThe two routes into the same mutual fund scheme: a direct plan with no distributor and a lower expense ratio, and a regular plan that pays distributor commission — same portfolio, separate NAVs.
- Client level segregationThe SEBI rule that no single client may receive both advisory and distribution services from the same investment adviser group — each client is one or the other, never both.
- Family of clientUnder SEBI's Investment Adviser Regulations, a client's dependent spouse, dependent children and dependent parents — the group covered when an adviser's obligations to a client extend to that client's dependants.