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Do’s and Don’ts for Investment Advisors

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Hari Dwivedi | corplaw@vinodkothari.com

Introduction

SEBI, the regulatory body overseeing various intermediaries in primary and secondary markets, such as merchant bankers, portfolio managers, research analysts, debentures trustees, underwriters, stock brokers, sub brokers, bankers to an issue, investment advisors, registered custodians, and more, has registered over 33,000 intermediaries as per SEBI’s recognized intermediaries data. Among them, there are 1331 Investment Advisors (referred to as “IA”) as on 24th September, 2023. In this article, we will discuss the role of IA in the securities market and outline some important do’s and don’ts for them, given their significant role.

IA plays a pivotal role in facilitating prudent financial decision-making for both individuals and institutions. Their expertise, customized strategies, and risk management proficiency are instrumental in aiding clients to realize their financial objectives and navigate the intricacies of financial markets. This client-advisor relationship hinges on a foundation of trust, invoking a stringent fiduciary obligation upon IA. They are ethically and legally mandated to prioritize the best interests of their clients, entailing the provision of transparent and candid counsel, the avoidance of conflicts of interest, and meticulous disclosure of any potential conflicts. In fulfilling these responsibilities, it is imperative for IA to meticulously adhere to the regulatory provisions, observing both the prescribed protocols and constraints. This not only safeguards against penalties but also upholds client satisfaction, fostering a harmonious and productive relationship.

But before we delve into the do’s and don’ts for an IA, let’s first understand who is an IA under the applicable legal provisions.

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