SEBI issues guidelines for research analysts, investment advisors

Markets regulator Sebi on Wednesday said it has issued guidelines on the regulatory framework for research analysts and investment advisers to strengthen investor protection and ensure transparency. The guidelines come after the regulator notified the Research Analyst (RA) Rules and Investment Advisor (IA) Standards in December last year.

The new norms include eligibility norms, fee structures, deposit requirements and client segregation protocols.

The regulator introduced fresh compliance mandates, especially for organizations using artificial intelligence (AI) tools in their services.

Under the revised framework, SEBI said research analysts are required to maintain deposits based on their client base, which for 150 clients is Rs. 1 lakh to over 1,000 clients for Rs. Up to 10 lakhs.

The purpose of these deposits is to provide additional security for investors.

Also, investment advisors are mandated to follow a graded deposit system linked to client numbers.

Existing IAs must comply with the deposit requirements by June 30, 2025, while new applicants must comply immediately. Similarly, all research analysts must meet the deposit requirements by April 30, 2025, Sebi said in two separate circulars.

Additionally, the market watchdog has permitted individuals and organizations to have dual registration as RAs and IAs, keeping their advisory and research services separate.

Sebi said such entities should follow separate compliance frameworks for each function. Both RAs and IAs are required to ensure client-level segregation to prevent conflicts of interest. Clients receiving advisory services from an entity cannot access distribution services within the same group and vice versa.

With the growing adoption of artificial intelligence in financial services, SEBI has imposed strict obligations on RAs and IAs to leverage such tools. Entities must disclose the extent of AI usage in their offerings and ensure compliance with data protection and applicable regulations.

In addition, the regulator has mandated detailed disclosures regarding terms and conditions for research and consulting services, including fee structures and conflict of interest declarations.

Also, RAs and IAs should conduct annual compliance audits by submitting reports to their respective supervisory bodies – Research Analysts Administration and Supervisory Body (RAASB) and Investment Advisers Administration and Supervisory Body (IAASB) respectively.

Any adverse findings should be published on their websites, in addition to corrective actions.

These institutions are also required to establish a functional website containing mandatory disclosures and ensure KYC compliance for all customers.

The guidelines introduced provisions for part-time RAs and IAs, allowing professionals such as teachers, architects and lawyers to register, provided their primary occupations did not conflict with market regulations.

However, these persons engage in advisory activities such as giving advice or making any recommendation, or making any claim in respect of or relating to any security or securities registered with or with SEBI’s permission, shall be ineligible for registration.

The market watchdog’s new rules extend to model portfolio recommendations by RAs, mandating detailed reports including benchmarking, risk disclosures and rationale.

Investment advisers providing financial planning services covering non-SEBI-regulated products must secure client declarations accepting limited regulatory oversight.