Persons associated with investment advice

SEBI registers a firm, but a person gives the advice. What if the rules applied only to the registered firm? Then a rule-following adviser could put anyone at all in front of clients.

The Investment Advisers Regulations close that gap. They name a group: persons associated with investment advice.

The group covers anyone linked to the adviser in these roles:

• member or partner;
• officer or director;
• employee or sales staff;
• anyone with a similar status or doing a similar job, however they are linked.

The condition is that they are engaged in providing investment advisory services to the adviser's clients.

The result is simple. The rules on qualifications and certificates apply to these individuals. They do not stop at the licence holder.

The definition is drawn broadly and then trimmed once.

In: all client-facing staff — sales staff, service relationship managers, client relationship managers, "whatever name called" — are deemed to be persons associated with investment advice.

Out: persons who discharge clerical or office administrative functions where there is no client interface.

The qualification requirement then attaches, at all times, to the individual investment adviser, the principal officer of a non-individual adviser, persons associated with investment advice, and, where the adviser is a partnership firm, the partners engaged in providing advice. Each must hold either:

• a graduate degree or equivalent educational qualification from a university or institution recognised by the Central or a State Government or a recognised foreign university, or the CFA Charter from the CFA Institute, together with the relevant NISM certification (or one from an organisation accredited by NISM); or
• a Post Graduate Program in the Securities Market (Investment Advisory) from NISM, a Post Graduate Program in Financial Planning from NISM, or such other NISM programme as SEBI specifies.

Certification is not a one-off. A fresh relevant NISM certification must be obtained before the existing one expires, or within three years from the date of the registration certificate, as the case may be, so that compliance is continuous.

Anchor Advisory LLP is a non-individual investment adviser with eleven people.

Nine of the eleven must hold the qualification at all times and renew the NISM certification before the existing one lapses.

The money consequence is direct. Anchor bills 140 clients an average of Rs 90,000 a year — Rs 1.26 crore of fee income. If one relationship manager's certification lapses for four months and is renewed late, every recommendation that person made in those four months came from an uncertified associated person, and the firm's annual audit — which must be completed within six months of the financial year end — will say so.

One adjacent rule shapes the same problem for sole practitioners: an individual adviser must apply for registration as a non-individual adviser on or before reaching 150 clients, and from the moment the count reaches 150 until that registration is granted, may not onboard fresh clients.

Chapter 19, both the definitions in section 19.1 and the compliance requirements under Regulation 7. The tested points are the clerical carve-out (no client interface, no associated-person status), the deeming of client-facing staff whatever their job title, and the list of people the qualification and certification requirement binds — individual adviser, principal officer, associated persons and advising partners.

• The test is engagement in advisory services plus client interface, not the job title. A "service relationship manager" is in; a clerk who never meets a client is out.
• The qualification binds individuals, not the firm. A registered LLP whose principal officer is qualified does not thereby qualify its relationship managers.
• Certification must be held at all times and renewed before expiry. Letting it lapse and renewing a month later leaves an uncovered gap that the audit will find.
• Note the three years from the date of the registration certificate limb — it applies as the case may be, alongside the before-expiry rule, and is frequently the answer to a date-based question.
• Distribution services are separately restricted: an individual adviser may not provide them, the individual's family may not provide them to a client the individual advises, and a non-individual adviser needs client-level segregation at group level.
• Do not confuse this class with the definition of investment advice itself. Advice through mass media and trading calls fall outside that definition entirely.