NISM-Series-X-A: Investment Adviser (Level 1) · Ethical Issues

Code of Conduct for Investment Advisers under SEBI Regulations

Updated 11 October 2026 · Fact-checked

The code of conduct is a set of duties in the SEBI (Investment Advisers) Regulations, 2013 that every investment adviser must follow. It covers honesty, diligence, fair dealing, confidentiality, disclosure of conflicts and putting client interest first. To solve questions, match the scenario to the duty it breaches.

Understand Code of Conduct for Investment Advisers

An investment adviser gives advice for a fee and clients rely on it. Clients usually cannot check the quality of advice themselves. So SEBI sets a code of conduct. It turns trust into rules that the adviser must follow and SEBI can enforce.

The code rests on a few ideas. The adviser must act in a fiduciary manner and in the best interest of the client. The adviser must be honest, fair and diligent. The adviser must keep client information confidential. The adviser must disclose anything that could affect the advice, such as conflicts of interest. The adviser must comply with laws and regulations.

Think of the duties as groups:

Honesty and integrity: no misleading statements, no guaranteed returns, no hiding facts.
Diligence and care: advice must rest on proper study and on the client's profile.
Fair dealing: treat clients alike. Do not favour one client over another unfairly.
Confidentiality: do not share client data except where the law or the client permits.
Disclosure and conflicts: reveal conflicts and avoid or manage them.

The exam rarely asks you to recite the code word by word. It gives a situation and asks which duty is breached or what the adviser should do. Learn the principle behind each duty and you can answer from first principles. Check the exact wording of individual clauses in your NISM workbook.

Key formulas to remember

Core standard: Act in a fiduciary manner + best interest of the client; The adviser puts the client's interest ahead of their own. This is the answer when options conflict.
Honesty and fairness: Honesty + fairness + no misleading claims; Guaranteeing returns or hiding risks breaches this.
Diligence: Advice = based on client profile + due care and skill; Advice without knowing the client's risk profile and needs is not diligent.
Confidentiality: Client information = confidential, unless law or client permits disclosure; Sharing with others for the adviser's gain is a breach.
Conflict of interest: Disclose + avoid or manage conflicts; Disclosure to the client is required. Silence is a breach.
Compliance: Follow SEBI Act, rules, regulations and circulars; Applies to all advisory activity.

How to solve Code of Conduct for Investment Advisers questions

Use this method for any code of conduct question, whether it is a definition or a scenario.

1Read the scenario and note who did what: the adviser, the client and any third party.
2Ask what the adviser gained or what the client lost.
3Name the duty touched: honesty, diligence, fair dealing, confidentiality, conflict disclosure or compliance.
4Check whether the adviser acted in the client's best interest and in a fiduciary manner.
5Eliminate options that excuse the act because the client agreed, the market was good, or the adviser meant well.
6Pick the option that matches the duty and gives the remedy: disclose, stop, seek consent or follow the law.
7Check for words like 'always', 'never' or 'only' and verify them against the principle.

Quickest way: Duty-matching shortcut

When to use it: Use it for scenario MCQs when time is short.

Find the one act that looks wrong in the stem.
Match it to a single keyword: honest, diligent, fair, confidential or conflict.
Choose the option that protects the client and discloses openly.
Reject options that favour the adviser, hide information or promise returns.

Common mistakes in Code of Conduct for Investment Advisers

Thinking a client's consent cures any breach.
Consent sounds like a complete defence.
Fix: Consent helps with disclosed conflicts. It never permits misleading advice, guaranteed returns or breaking the law.
Treating confidentiality as absolute.
The word suggests no exceptions.
Fix: Remember the exceptions: disclosure required by law or authorised by the client.
Confusing disclosure with avoidance of conflict.
Both deal with conflicts.
Fix: Disclosure is the minimum. Where a conflict cannot be managed, avoid it. Read the option wording carefully.
Assuming fair dealing means identical advice to all clients.
Fair sounds like equal.
Fix: Advice must suit each client's profile. Fair means no unfair favouring, not the same product for everyone.
Picking the option that sounds most customer-friendly without checking the rule.
Ethics questions feel intuitive.
Fix: Tie the answer to a named duty. With negative marking, skip if you cannot link it to one.
Mixing up the code of conduct with the grievance and penalty provisions.
They sit close together in the syllabus.
Fix: Code of conduct is about how to behave. Penalties and redress are about what follows a breach.

Worked examples

Example 1

An investment adviser recommends a product from which a related party earns a commission. He does not tell the client. Which duty is breached?

Show the solution

The adviser has a conflict: a related party benefits from the recommendation.
The conflict was not disclosed to the client.
The code requires conflicts to be disclosed and avoided or managed.
The client cannot judge whether the advice is unbiased.

Answer: Duty to disclose conflict of interest, along with the duty to act in the client's best interest.

Example 2

A client asks an adviser how much a mutual fund will return next year. The adviser says, 'This fund will certainly give you 15%, I guarantee it.' Is this acceptable?

Show the solution

Future returns in securities markets are uncertain.
A guarantee is a misleading assurance.
The code requires honesty and fair, non-misleading communication.
The adviser should explain risks and give no assurance of returns.

Answer: Not acceptable. It breaches the duty of honesty and fairness because the adviser gave a guarantee of returns.

Exam tips

Most questions are scenarios. Name the duty first, then choose the option.
Absolute words such as 'always' or 'never' are often traps, especially for confidentiality.
Fiduciary and best interest of the client is the safest anchor when two options look close.
X-A has negative marking of 25% of the marks assigned to a question, so a wrong answer on a 2-mark caselet question costs more. Guess only after eliminating options.
Confirm exact clause wording in the NISM workbook before the test.

Practice questions from Ethical Issues

Code of Conduct for Investment Advisers in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Code of Conduct for Investment Advisers: frequently asked questions

What is the code of conduct for investment advisers?

It is a set of duties in the SEBI (Investment Advisers) Regulations, 2013. It covers honesty, diligence, fair dealing, confidentiality, disclosure of conflicts and acting in the client's best interest.

Can an investment adviser share client information?

Only where the law requires it or the client permits it. Sharing it otherwise breaches confidentiality.

Can an adviser guarantee returns to a client?

No. Guaranteeing returns is misleading and breaches the duty of honesty and fairness.

How is this topic asked in NISM X-A?

Usually as short scenario MCQs. You identify the duty breached or the correct action. Learn the principles rather than memorising clause numbers.