Final Level (Mod. 1) - Book

It may be noted that the first paragraph of the definition of investment advice ends in, “…and shall include financial planning”. Further, under Regulation2(h) of the IA Regulations defines financial planning as:“financial planning” shall include analysis of clients’ current financial situation, identification of their financial goals, and developing and recommending financial strategies to realize such goals Investment Advisers Regulations and FPSB’s Financial Planning Process SEBI’s definition of financial planning under the IA Regulations introduce terms such as ‘analysis of…financial situation, ‘identification of…financial goals’, ‘developing and recommending financial strategies to realize…goals’. This definition of financial planning closely resembles how FPSB defines financial planning, which is: “…..a process of developing strategies to help people manage their financial affairs to meet life goals”. In creating their recommendations and plans, financial planners may review all relevant aspects of a client’s situation across a breadth of financial planning activities, including inter-relationships among often conflicting objectives.” It is worthwhile to distinguish here that FPSB’s Financial Planning Process is an elaborate, characteristic 6-step process, which includes a systematic way of collecting client information and data, analysis of financial situations, identifying client goals, developing strategies, presenting recommendations, implementing those recommendations, and reviewing the same periodically. This process encompasses identified financial planning components and includes general financial management, investments, risk analysis and insurance, retirement planning, tax optimization, estate planning and wealth transfer. A financial planner and client can specify in their engagement any one, more or all of these components to be chosen, and whether the scope of engaging financial planner is limited to developing strategies and presenting recommendations only, or extends to implementation and review, or both. The above definition of FPSB’s process includes all spheres of personal finance and is designed to enable a prospective planner to fathom all knowledge, acquire necessary skills and sharpen them to a level of competence in order to effectively deliver financial planning services. However, this has to be suitably tempered based on territory specific laws, regulations and guidelines. The IA Regulations include, within the scope of investment advice, all advice relating to securities or investment products, investment portfolio containing securities or investment products, as well as financial planning. Financial planning under the IA Regulations has a narrower definition, which broadly CFP Final Level: Financial Planning Process, Principles and Practice: Module 1 Page 97

includes performing analysis of the client’s financial situations and making recommendations to achieve their financial goals. As you will learn later in this chapter, SEBI mandates clear segregation in advice and execution (or distribution) functions, and further seeks to avoid conflict situations whereby an RIA’s fees or any other remuneration from advisory on products should not be received at a family level or group level (for non-individual investment advisers). With the objective of ensuring complete avoidance of conflict of interest, SEBI amended the IA Regulations in July 2020 vide SEBI (Investment Advisers) (Amendment) Regulations, 2020 (“2020 Amendment”), inserting Regulation 22A, which provides that an investment adviser can provide implementation or execution services only through direct schemes/products and shall ensure that no consideration is received, either directly or indirectly, for provision of such services. This laid down the ideal pathway, in consonance with FPSB’s 6-step financial planning process, whereby a holistic financial plan can be executed and periodically reviewed by a CFP professional who registers himself as an RIA under the IA Regulations. Requirement to Register and Exemptions from Registration Registration with SEBI is a mandatory requirement for an intermediary, such as an RIA, who dispenses advice to clients on investment products, process and strategies for a fee. This requirement is provided under Regulation 3(1) of SEBI (Investment Advisers) Regulations, 2013 titled ‘Application for grant of certificate’: On and from the commencement of these regulations, no person shall act as an investment adviser or hold itself out as an investment adviser unless it has obtained a certificate of registration from the Board under these regulations. Such advice may pertain to, apart from investment in securities, other areas of personal finance such as risk management, insurance planning, retirement planning, tax optimization and wealth transfer. By the 2020 Amendment, SEBI further reinforced the requirement for registration by inserting regulation 3(3), which provides that no person, while dealing in the distribution of securities, shall use the nomenclature Independent Financial Adviser (IFA) or Wealth Adviser or any other similar name unless registered with SEBI as Investment Adviser. However, if the financial service and advice pertains to non-securities, viz. dealing exclusively in insurance or retirement products, the concerned intermediaries do not need to be registered as a RIA. CFP Final Level: Financial Planning Process, Principles and Practice: Module 1 Page 98

Under Regulation 4 of the IA Regulations, SEBI has exempted certain professionals from the mandatory registering under the IA Regulations. They are: 1. Professionals who offer investment advice solely in any category of products such as insurance and pension by duly registering with the product manufacturer’s regulators; 2. Distributors of mutual fund products who are registered with a recognized Self-Regulatory Organization or registered with an association of mutual fund AMCs (asset management companies) and who offer investment advice incidental to their primary activity; 3. Advocates, solicitors, law firms, Chartered Accountants, Company Secretaries, Cost and Works Accountants, when they furnish investment advice to the client incidental to their legal/professional practice; 4. Stock brokers, sub-brokers and Merchant Bankers registered under the respective SEBI regulations, and who provide investment advice incidental to their primary activity (subject to certain compliances); Portfolio Managers registered under the respective SEBI regulation (provided they apply in due course under IA Regulations); fund managers of mutual funds and alternative investment funds; any person who provides investment advice exclusively to clients based out of India, provided those clients are not Non-Resident Indians or Persons of Indian Origin. The IA Regulations further provide that persons who give general comments in good faith in regard to trends in the financial/securities market or the current economic situation, where such comments do not specify any particular securities or investment product, are exempted from registration. The import of the above exemptions is that the cited professionals will be mandated to register as Investment Adviser if they broad-base their advice across products and/or other clientele for dispensing investment advice. Eligibility Criteria for Investment Advisers –Qualification, Certification, Experience, etc. Regulations 7(1) and 7(2) of the IA Regulations respectively prescribe the minimum qualifications and certification criteria for an Investment Adviser, and partners and representatives of an investment adviser registered under IA Regulations and states as follows: 1. Qualifications: Page 99 CFP Final Level: Financial Planning Process, Principles and Practice: Module 1

It is required that an individual investment adviser or a principal officer of a non-individual investment adviser registered as an investment adviser shall, at all times have any of the following minimum qualifications: a) A professional qualification or postgraduate degree or postgraduate diploma (minimum two years in duration) in finance, accountancy, business management, commerce, economics, capital market, banking, insurance or actuarial science from a university or an institution recognized by the Central Government or any State Government or a recognized foreign university or institution or association or a CFA Charter from the CFA Institute. b) Experience of at least five years in activities relating to advice in financial products or securities or fund or asset or portfolio management. (introduced vide the 2020 Amendment) Certification Requirement: In addition to the above qualifications and experience, an individual investment adviser or principal officer of a non-individual investment adviser who seeks registration or is registered as a RIA shall also have, at all times, a certification of financial planning or fund/asset/portfolio management or investment advisory services from: 1. National Institute of Securities Markets (NISM); or 2. From any other organization or institution including Financial Planning Standards Board of India or any recognized stock exchange in India, provided such certification is accredited by NISM. A fresh certification must be obtained before expiry of the validity of the existing certification to ensure continuity in compliance with certification requirements. The renewal of certification should be other than through continuous professional development, and passing preferably the same examination again or NISM’s Investment Adviser exam. Experience: The 2020 Amendment requires that persons associated with investment advice, such as, any member, partner, officer, director or employee or any sales staff of such investment adviser including any person occupying a similar status or performing a similar function, shall have: 1. Such minimum qualification and certification as mandated for an investment adviser (As provided in Regulation 7(1)(a)) 2. Experience of at least two years in activities relating to advice in financial products or securities or fund or asset or portfolio management. CFP Final Level: Financial Planning Process, Principles and Practice: Module 1 Page 100

A distinction is drawn in respect of experience criteria for individual investment advisers and partners/managers of non-individual investment (5 years) and for other persons associated with investment advice (2 years). Such associated persons shall include all client-facing persons such as sales staff, service relationship managers, client relationship managers, etc., but do not include persons who discharge clerical or office/administrative functions. Investment Advisers – Individuals and Non-Individuals SEBI under the IA Regulations has specified two categories of investment adviser – individual and non- individual. “Non-individual” means a body corporate including a limited liability partnership (LLP) and a partnership firm and the entities employees/managers/partners must meet versions of the aforementioned criteria for registration. In respect of a non-individual investment adviser, its principal officer is the managing director or designated director or managing partner or executive chairman of the board or equivalent management body who is responsible for the overall function of the business and operations of such non-individual investment adviser, and such principal officer must obtain registration under the IA Regulations. All other advisers fall under the “individual” category. The 2020 Amendment mandates that an individual investment adviser who has more than 150 clients under advisory shall be required to register as a non-individual investment adviser, and follow related compliances (as per Regulation 13(e)). The IA Regulations further provide that an individual investment adviser shall not offer implementation or execution services to his/her clients either directly or through any of their family members. Other mandated requirements and procedures for Investment Advisers 1. Networth: The net worth requirements of individual and non-individual investment advisers are provided under Regulation 8 of the IA Regulations, 2013, introduced by the 2020 Amendment: Investment advisers who are non-individuals shall have a net worth of not less than Rs. 50 lakh. In this context, “Net worth” means the aggregate value of paid up share capital plus free reserves (excluding reserves created out of revaluation) reduced by the aggregate value of CFP Final Level: Financial Planning Process, Principles and Practice: Module 1 Page 101

accumulated losses, deferred expenditure not written off, including miscellaneous expenses not written off. The net worth requirement for individual investment advisers is net tangible assets of value not less than Rs. 5 lakh . (b). The IA Regulations provide that Investment Advisors are to carry out certain functions and meet certain compliance set out by SEBI, such as: 1. Risk Profiling and Assessment: Investment advisers shall formulate a process of assessing a client's general risk profile, taking into account their needs and understand their risk tolerance i.e. assumed risk that a client is willing to take. Investment Advisers should ensure that the tools used to analyze the same are fit for the purpose and the risk assessment is updated periodically and duly communicated to the client. 2. Suitability: Investment advisers are required to have a documented process for selecting investments, based on a client’s investment objectives and financial situation. They should have a reasonable basis for believing that a recommendation or transaction being entered into, meets the client’s investment objectives and risk tolerance. While advising on a complex financial product, investment advisers should ensure that the structure and risk - reward profile of the product is consistent with client’s experience, knowledge, investment objectives, risk appetite and capacity for absorbing loss. 3. Disclosures to clients: Investment adviser shall disclose prior to engagement and on a continued basis, its business, affiliations and disciplinary history, the specific terms and conditions on which the advisory services are offered and any conflicts of interest (as and when they arise). 4. Maintenance of Records: Certain records are mandated to be maintained and preserved for a minimum period of five years either in physical or electronic form (in which case they shall be digitally signed). A list of records to be maintained have been provided under Regulation 19 of the IA Regulations, 2013 and include KYC Records, copies of agreements with clients (requirement inserted pursuant to the 2020 Amendment), risk profiling and suitability assessment, investment advice (whether written or oral), rationale for arriving at investment advice provided, register of list of clients, date of advice, nature of advice/products and fee charged, if any. Additionally, investment advisers are required to conduct an annual audit in respect of compliance with IA Regulations and other applicable SEBI Regulations from a member of the Institute of Chartered Accountants of India or Institute of Company Secretaries of India. and submit a report of the same in such manner as prescribed by SEBI. CFP Final Level: Financial Planning Process, Principles and Practice: Module 1 Page 102

5. Appointment of a Compliance Officer: Regulation 30 prescribes the appointment of a Compliance Officer for non-individual investment advisers to monitor compliance with the IA Regulations. 6. Redressal of Client Grievances: An investment adviser shall keep and maintain an adequate procedure for expeditious grievance redressal. Client grievances pertaining to financial products in which investments have been made based on an Investment Advisor’s advice, fall within the purview of the regulator of such financial product. Any dispute between an Investment Adviser and their client may be resolved through arbitration or through an Ombudsman authorized or appointed for the purpose by the concerned regulatory authority. 7. Implementation of Advice or Execution without receiving any consideration or benefit: Regulation 22A, inserted by the 2020 Amendment, provides that an investment adviser may provide implementation services to its advisory clients only through direct schemes/products in the securities market, and must clarify that the client shall not be under any obligation to avail implementation services offered by the investment adviser. The investment adviser or group or family of investment adviser shall not charge any implementation fees from the client and shall in no way receive any consideration, whether directly or indirectly, for providing implementation/execution services. 8. Segregation of advice and execution services, and other disclosures: Provided in Regulation 22 of the IA Regulations, this is intended to avoid any conflict of interest and has been discussed in greater detail below. Segregation of advice and execution services, and other disclosures Regulation 22 was introduced by the 2020 Amendment with the specific intent of creating a distinct segregation between advisory services and execution services. Further, SEBI carved out an embargo on offering both services through family and related businesses. In this regard, SEBI has laid down the following: Regulation 22 1. An individual investment adviser shall not provide distribution services. 2. 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. 3. A non-individual investment adviser shall have client level segregation at group level for investment advisory and distribution services. CFP Final Level: Financial Planning Process, Principles and Practice: Module 1 Page 103

Explanation – (i). The same client cannot be offered both advisory and distribution services within the group of the non-individual entity. (ii). A client can either be an advisory client where no distributor consideration is received at the group level or distribution services client where no advisory fee is collected from the client at the group level. (iii). ‘Group’ for this purpose shall mean an entity which is a holding, subsidiary, associate, subsidiary of a holding company to which it is also subsidiary or an investing company or the venture as per the provisions of Companies Act, 2013 for non-individual investment adviser which is a company under the said Act and in any other case, an entity which has a controlling interest or is subject to the controlling interest of a non-individual investment adviser. 4. Non-individual investment adviser shall maintain an arm’s length relationship between its activities as investment adviser and distributor by providing advisory services through a separately identifiable department or division. 5. Compliance and monitoring process for client segregation at group or family level shall be in accordance with the guidelines specified by the Board. Regulation 22A further explains the segregation in respect of the fees to be received by an investment adviser and states: 1. Investment adviser may provide implementation services to the advisory clients in securities market: Provided that investment advisers shall ensure that no consideration including any commission or referral fees, whether embedded or indirect or otherwise, by whatever name called is received; directly or indirectly, at investment adviser’s group or family level for the said service, as the case maybe. 2. Investment adviser shall provide implementation services to its advisory clients only through direct schemes/products in the securities market. 3. Investment adviser or group or family of investment adviser shall not charge any implementation fees from the client. . 4. The client shall not be under any obligation to avail implementation services offered by the investment adviser. Managing conflicts of interest: Obligations of an Investment Adviser towards the Client An investment adviser must always act in a fiduciary capacity towards his or her client and as such, Regulation 15 prescribes specific general responsibilities of the investment adviser towards their client as follows: CFP Final Level: Financial Planning Process, Principles and Practice: Module 1 Page 104

1. Disclosure of conflict of interest situations (With regard to consideration, affiliations, between investment advisory and other activities) by the investment advisers to their clients if and when they arise; 2. Maintenance of arm’s length relationship between its activities as investment adviser and distributor through clear segregation i.e. by providing advisory services through a separately identifiable department or division. Compliance and monitoring process for client segregation at group or family level shall be in accordance with the guidelines specified by SEBI. 3. Maintain confidentiality of client information (disclosure to be made only to fulfil legal compliances/where and in such manner as prescribed by law); 4. Strict abstinence from entering into transactions on their own account, contrary to advice given to the client, for fifteen days after giving such advice; 5. Follow the Know Your Customer procedure and abide by the Code of Conduct. Code of Conduct for Investment Advisers – Fiduciary relationship The IA Regulations detail certain obligations and responsibilities to be observed by investment advisers. An investment adviser is obligated to act in a fiduciary capacity towards its clients, and is mandated to disclose all conflicts of interests as and when they arise. The mandated Code of Conduct under the IA Regulations is given below. 1. Honesty and Fairness An investment adviser shall act honestly, fairly and in the best interests of its clients and in the integrity of the market. 2. Diligence An investment adviser shall act with due skill, care and diligence in the best interests of its clients and shall ensure that its advice is offered after thorough analysis and taking into account available alternatives. 3. Capabilities An investment adviser shall have and employ effectively appropriate resources and procedures which are needed for the efficient performance of its business activities. 4. Information about Clients (Confidentiality) An investment adviser shall seek from its clients, information about their financial situation, investment experience and investment objectives relevant to the services to be provided and maintain confidentiality of such information. 5. Information to Clients (Disclosures and Transparency) An investment adviser shall make adequate disclosures of relevant material information while dealing with its clients. 6. Fair and Reasonable charge CFP Final Level: Financial Planning Process, Principles and Practice: Module 1 Page 105

An investment adviser advising a client may charge fees, subject to any ceiling as may be specified by SEBI. The investment adviser shall ensure that fee charged to the clients is fair and reasonable. 7. Conflicts of Interest An investment adviser shall try to avoid conflicts of interest as far as possible and when they cannot be avoided, it shall ensure that appropriate disclosures are made to the clients and that the clients are fairly treated. 8. Compliance An investment adviser including persons associated with investment advice shall comply with all regulatory requirements applicable to the conduct of its business activities so as to promote the best interests of clients and the integrity of the market. Primary Responsibility of Senior Management (for corporates/non-individuals) The senior management of a body corporate which is registered as investment adviser shall bear primary responsibility for ensuring the maintenance of appropriate standards of conduct and adherence to proper procedures by the body corporate. Other Procedures and Compliances required of Investment Advisers Procedure for segregating clients: The Permanent Account Number (PAN) of each client shall be the control record foridentification and client level segregation. In case of an individual client, the “family ofclient” shall be reckoned as a single client, and PAN of all members in the “family ofclient “would jointly and severally be the control record. The same however is not applicable for non-individual clients The investment adviser shall maintain on record an annual certificate from an auditor (In case of individual RIA) and from its statutory auditor (in case of non-individual RIA) confirming compliance with the client level segregation as specified in the Regulations. Agreement between IA and the Client: Regulation 19(1)(d) of the amended IA regulations mandate that IA shall enter into an investment advisory agreement with its clients. The IA can additional terms over and above the ones provided vide ‘Annexure A’ in the Guidelines for Investment Advisers (dated September 23, 2020). It is required under the amended IA Regulations that RIAs should enter into structured investment advisory agreements with all existing clients by 1st April, 2021. This would provide opportunity for the RIAs to CFP Final Level: Financial Planning Process, Principles and Practice: Module 1 Page 106

revisit and reassess their viable client relationships. The agreement has to be signed and a copy of the same has to be provided to the client. The IA has to also ensure that no fee is received or services provided outside the scope of the agreement. Fee to be charged by an Investment adviser: SEBI under regulation 15 A of the amended IA regulations stipulate fees to be charged by investment advisers to: (a) Not to exceed 2.5% per annum per client of the Assets Under Advice (AUA) across all services offered by RIA; The AUA should be duly supported by documents, and any portion of AUA held by the client under any pre-existing distribution arrangement with any entity shall be deducted from such AUM; (b) Not to exceed Rs 125,000 under fixed fee mode per annum per client across all services offered by RIA. Any one mode may be adopted and continued for at least 12 months from the date of on boarding a client, or a change from previous mode. The ‘family of client’, wherever referred shall be per client basis. No more than two quarters’ fee can be charged in advance. In case of premature termination of investment advisory agreement, the fee for the unexpired period is to be refunded to the client, with a restriction that an RIA may retain no more than a quarter’s fee toward such breakage of agreement. Maintenance of Records: The investment adviser shall maintain, under regulation 19(1), the following records: 1. Maintain a record of interaction with all clients, including clients prior to on boarding, where any conversation related to advice has taken place, such record may be of the form of physical document, telephone recording, email from registered id, text message, or any such verifiable record. 2. Such records may be maintained from the beginning of interaction until the completion of investment advisory services to the client. 3. Such records shall be preserved for a period of five years, or where a dispute has been raised, until the resolution of that dispute, or as further intimated by SEBI for preservation of specific records. Annual Audit and addressing audit observations: Within six months from the end of a financial year, the investment adviser shall get an annual audit conducted in respect of compliance of SEBI (Investment Advisers) Regulations, 2013 and the circulars issued there under. The adverse findings in the audit report and the action taken report should be CFP Final Level: Financial Planning Process, Principles and Practice: Module 1 Page 107

submitted in the jurisdictional SEBI office within one month of the audit report, but not later than 31st October of the succeeding financial year in respect of a financial year. Broad Powers of SEBI to adjudicate and impose penalty Under the IA Regulations, SEBI has the right and power to appoint one or more persons as inspecting authority to inspect the affairs of an RIA, upon receipt of a complaint or suomotu. Such an inspection is conducted to ensure books of accounts, records and documents are being maintained in the manner prescribed, ascertain whether the regulations are being complied with etc. Regulations 23 to 27 deal with the procedure of inspection that is, serving notice of inspection to the RIA, submission of a report and subsequent action on the report. Throughout the process, RIA’s are obligated under the IA Regulations to co-operate and assist with the inspection and provide the inspecting authority with all relevant records. Regulation 28 provides: An investment adviser who – (a) contravenes any of the provisions of the Act or any regulations or circulars issued There under; (b) fails to furnish any information relating to its activity as an investment adviser as required by the Board; (c) furnishes to the Board information which is false or misleading in any material particular; (d) does not submit periodic returns or reports as required by the Board; (e) does not co-operate in any enquiry, inspection or investigation conducted by the Board; (f) fails to resolve the complaints of investors or fails to give a satisfactory reply to the Board in this behalf, shall be dealt with in the manner provided under the Securities and Exchange Board of India (Intermediaries) Regulations, 2008. The SEBI (Intermediaries) Regulations, 2008 lays down a specific procedure to be followed in cases of non-compliance by an intermediary and involves adjudication by a designated authority and a designated member. If an intermediary is found to be in contravention, they may be debarred from providing such services and/or their registration certificate stands cancelled or suspended. Any order passed by the designated authority Further, as the IA and SEBI (Intermediaries) Regulations are to be read harmoniously with their parent legislation, that is, Securities and Exchange Board India Act, 1992 (“SEBI Act”), non-compliance by an intermediary may also attract a monetary penalty. Section 15 of the SEBI Act, 1992 titled ‘Power to impose penalties’ of the SEBI Act, 1992, categorizes offences/contraventions and prescribes distinct penalties. Any contraventions of the IA Regulations fall CFP Final Level: Financial Planning Process, Principles and Practice: Module 1 Page 108

under the category of ‘penalty for contravention where no separate penalty has been provided’ and attracts Sections 15HB and 15J. Section 15HB - Penalty for contravention where no separate penalty has been provided Whoever fails to comply with any provisions of this Act, the rules or the regulations made or directions issued by the Board thereunder for which no separate penalty has been provided, shall be liable to a penalty which shall not be less than one lakh rupees but which may extend to one crore rupees. Section 15J - Factors to be taken into account by the adjudicating officer While adjudging the quantum of penalty under Regulation 15 I (Power to adjudicate), the adjudicating officer shall have due regard to the following factors, namely- (a) The amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default; (b) The amount of loss caused to an investor or group of investors as a result of the default; (c) The repetitive nature of the default. Orders issued by SEBI - Interim and Final Orders, Show cause notice SEBI has adjudicated on several cases involving contravention of the IA Regulations. The purview of the IA Regulations extends to those intermediaries who are unregistered as investment advisers and are still providing investment advice and each case is decided on a case to case basis while determining the quantum of penalty. On being notified through a specific or general complaint or other observation/news, etc against a registered investment adviser, or against some person who violates the provisions of SEBI (Investment Advisers) Regulations, 2013, the concerned department of SEBI, prima facie asks for certain documents from such notices. If the notices do not respond, or their actions having been alleged violations of the Regulations, SEBI appoints an adjudicating officer under Section 15-I of the SEBI Act read with Rule 3 of SEBI (Procedure forHolding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995. The officer issues show cause notices as to why an inquiry should not be held against the notices and penalty, if any, should not be imposed under the provisions of Section 15A (a) and 15HB of the SEBI Act, for the alleged violations committed by the notices of the provisions of Section 12 of the SEBI Act read with Regulation 3 of the Investment Advisers Regulations. The adjudicating officer carefully examines the submissions of the notices and material available on record. The issues that arise for consideration are: CFP Final Level: Financial Planning Process, Principles and Practice: Module 1 Page 109

1 .Whether the notices have violated the provisions of Regulation 3(1) of the SEBI (Investment Advisors) Regulations, 2013 and Section 12(1) of the SEBI Act, 1992? 2. Does the violation, if established, attract monetary penalty under Section 15HB of the SEBI Act, 1992? 3. If yes, then what should be the quantum of penalty? After consideration of issues and findings, if held against the violating entities, an order is passed with penalty under Section 15I, as mentioned above. The adjudicating officer may pass an interim order, restraining the notices to restrain from engaging in the activities that violate the Regulation, until the entire investigation is completed. Or the appellants may have prayed for interim order pending disposal of the appeals. Until such proceedings or appeal is completed, such interim order is in currency. An interim order is either revoked or stayed and converted into a final order depending on the outcome of final proceedings in an investigation or an appeal. Violation of SEBI (IA) Regulations by intermediaries and RIA - Consequences; some case studies Penalty for Unregistered Investment Advisory Services: In the case of Shri Zaqir Gaffar, an unregistered entity, SEBI held that the services offered fell under the definition of investment advice and the individual was considered to be an ‘investment adviser’ who had been offering services without registration. For the stated contravention and non-registration, SEBI, under Section 15I and 15J imposed a fine of Rs 2, 50,000 on the said adviser. In another case, a Chartered Accountant firm was providing investment advisory services in securities as an activity or business to clients or investors which were not incidental to their main activity. The firm did so without seeking an Investment Adviser license from SEBI. In this regard, the provisions of Section 15J of the SEBI Act, 1992 and Rule 5 of the Rules, require that while adjudging the quantum of penalty, the adjudicating officer shall have due regard to the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default, or the amount of loss caused to an investor or group of investors as a result of the default. In the present case, no quantifiable figures or data were made available on record to assess the disproportionate gain or unfair advantage and amount of loss caused to an investor or group of investors as a result of the default of the firm. However, the same is in disregard to the provisions of CFP Final Level: Financial Planning Process, Principles and Practice: Module 1 Page 110

Regulation 3(1) of the SEBI (Investment Advisers) Regulations, 2013 and Section 12(1) of SEBI Act, 1992. Hence, under the provisions of Section 15HB, a penalty of Rs 200,000 was imposed on the firm. In a case of delay in registration of services under Investment Adviser Regulation, An application for registration as Investment Adviser under Regulation 3 of the IA Regulations, an individual Mr. Rakesh Bhandari applied for RIA licence on November 11, 2014, i.e. after a year from the cut-off date for existing Investment Advisers to file the application for registration, which was October 21, 2013. Accordingly, the services provided by Mr. Bhandari after October 21, 2013 were allegedly deemed to be ‘unauthorised Investment Advisory Services’. It was found that the act of Mr. Bhandari of continuing to do investment advisory business, continuing to add new clients and continuing to receive consideration from clients, without making an application for registration under the IA Regulations within the period stipulated, was in reckless disregard to the regulatory requirement in place, resulting in his unjust enrichment by approximately Rs 34, 70,000. A penalty of Rs, 35,00,000 on Mr. Rakesh Bhandari under 15HB of the SEBI Act for the violation of the provisions of Section 12(1) of SEBI Act read with Regulation 3 of IA Regulations. Penalty for Unsuitable Advice An investment advisor M/s. Star Investment Research was found offering high risk products meant for high net worth individuals (HNIs) to clients who were in the age-bracket of 18-20 years and very senior citizens who were above 80 years and have annual income of less than Rs5 lakh. The case was investigated against the firm for pushing its clients towards investments with a higher risk profile than they could afford in breach of its fiduciary responsibility. The act of the firm taking advance payments and pushing multiple products on to investors implied more interest in generating business in disregard for and at the cost of the investment needs of clients, as assessed based on their risk profile and savings capacity. Taking into account the facts and circumstances of this case, a penalty of Rs 4,000,000 under Section 15HB of the SEBI Act was imposed on the firm for the violations committed. In another case, SEBI received a complaint against Capital Assure alleging that the firm charged a fee of Rs 25,00,000 for their services rendered wherein they promised an assured return of 10%. Upon receipt of the complaint, SEBI conducted an inspection of books of accounts, records and documents of the firm. During the inspection, it was inter alia observed that Capital Assure failed to adhere to a lot of requirements of SEBI (Investment Adviser) Regulations, viz. improper maintenance of KYC records, no segregation of execution and advisory services, non-suitability of the advice provided to the clients, non-maintenance of records as specified, disclosing factually incorrect and misleading information on the website with regard to the advisory services, charging inappropriate fees to clients, etc. SEBI directed the company to discontinue accepting funds from clients and directed them not to solicit any further business. CFP Final Level: Financial Planning Process, Principles and Practice: Module 1 Page 111

Other Regulations relevant to Compliance and Practice  SEBI ( Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market) Regulations, 2003  SEBI (Prohibition of Insider Trading) Regulations, 2015 Do’s and Don’ts issued by SEBI for investors CFP Final Level: Financial Planning Process, Principles and Practice: Module 1 Page 112