NISM-Series-X-A: Investment Adviser (Level 1) · Key Regulations

Investment Adviser Code of Conduct, Grievance Redressal and Penalties

Updated 11 October 2026 · Fact-checked

Under the SEBI (Investment Advisers) Regulations, 2013, advisers must follow a code of conduct covering honesty, fair dealing, disclosure, suitability and confidentiality. Unresolved client complaints go to SEBI SCORES and then arbitration or online dispute resolution. SEBI can penalise violations. Learn the principles, the redress route and the penalty powers.

Understand Code of Conduct, Grievance Redressal and Penalties

Investment advisers are paid for advice that clients rely on. SEBI therefore sets a code of conduct that sits inside the SEBI (Investment Advisers) Regulations, 2013. It is a set of binding principles, not a suggestion. A breach is a violation of the Regulations.

The code is built on a few ideas. Act honestly and in good faith. Exercise due diligence, skill and care. Put the client's interest first. Disclose conflicts of interest and any material information. Give advice that is suitable for the client. Keep client information confidential unless the law requires disclosure. Do not make false or misleading claims, and do not guarantee returns. Comply with all applicable regulations.

Grievance redressal works in layers. First, the adviser should have its own mechanism and try to resolve the complaint. If the client is not satisfied, the client can lodge a complaint on SEBI SCORES (SEBI Complaints Redress System), an online platform where SEBI takes the complaint up with the entity concerned and tracks it. Beyond that, SEBI has put in place the Online Dispute Resolution (ODR) mechanism, and clients may also use arbitration and other legal avenues.

Penalties follow from the SEBI Act, 1992 and the Regulations. For a violation, SEBI can issue warnings or directions, impose monetary penalties after adjudication, suspend or cancel the adviser's registration, and bar the person from the market. Serious cases may also involve prosecution.

For the exam, think of three questions. What must the adviser do? Where can the client complain? What can SEBI do if rules are broken? Most MCQs test one of these. Check your current NISM workbook for exact timelines and monetary limits, as they are revised from time to time.

Key formulas to remember

Core code of conduct principles: Honesty + Due diligence + Client interest first + Disclosure + Suitability + Confidentiality + Compliance; These are the themes tested. Any option that allows hiding a conflict or guaranteeing returns breaks the code.
Grievance redress route: Adviser's own mechanism → SEBI SCORES → ODR / arbitration / other legal remedy; The adviser should try to resolve first. SCORES is SEBI's online complaint platform.
SEBI action ladder: Warning / directions → monetary penalty → suspension → cancellation of registration → prosecution (serious cases); Severity of action depends on the gravity of the violation.
Guaranteed returns rule: Advisers must not guarantee returns or assure certainty of results; Any such promise is a code violation and a common trap option.

How to solve Code of Conduct, Grievance Redressal and Penalties questions

Use this method for any question on conduct, complaints or penalties.

1Read the question and decide which of the three areas it tests: conduct, grievance route, or penalty.
2For conduct, test each option against the principles: honesty, client interest, disclosure, suitability, confidentiality, compliance.
3Spot absolute words such as 'always', 'never', 'guaranteed'. They often signal a wrong option.
4For grievance questions, place the step in the order: adviser first, then SCORES, then ODR or arbitration.
5For penalty questions, match severity to action: minor breach to warning or penalty, serious breach to suspension or cancellation.
6If a number, timeline or amount is asked, recall it from your current NISM workbook. Do not guess a figure.
7Pick the option that protects the client and follows the Regulations, then check that exactly one option fits.

Quickest way: Client-first elimination

When to use it: Use it for scenario questions on conduct when time is short.

Ask: does this option put the adviser's gain above the client's interest? If yes, eliminate it.
Ask: does it hide, mislead or guarantee? If yes, eliminate it.
Ask: does it follow the proper channel, adviser then SCORES then ODR or arbitration? Keep it.
Choose the remaining option and move on.

Common mistakes in Code of Conduct, Grievance Redressal and Penalties

Thinking the code of conduct is only guidance.
The word 'code' sounds informal.
Fix: Remember it is part of the Regulations. Breach is a violation that SEBI can act on.
Saying clients must go straight to arbitration.
Students mix up the redress options.
Fix: Remember the layers: adviser's own mechanism, SCORES, then ODR or arbitration and other legal avenues.
Treating SCORES as a court that awards damages.
Complaint platforms are assumed to decide cases.
Fix: SCORES is a complaint and tracking platform. SEBI takes the matter up with the entity. It is not a civil court.
Believing a disclosed conflict makes any advice acceptable.
Disclosure is seen as a cure-all.
Fix: Disclosure is required but advice must still be suitable and in the client's interest.
Choosing an option that allows a guaranteed or assured return if the client agrees.
Client consent feels like permission.
Fix: Client consent does not cure a guarantee. Advisers must not promise returns.
Quoting penalty amounts or deadlines from memory of other exams.
Figures differ across NISM series and over time.
Fix: Use your current workbook for figures and learn the logic of the action ladder.

Worked examples

Example 1

An investment adviser recommends a product that pays her a higher commission, without telling the client, although a cheaper product suits the client equally. Which is the best description?

Show the solution

Identify the issue: a conflict of interest that was not disclosed.
Check the code: advisers must disclose conflicts and put the client's interest first.
Check suitability: a cheaper equally suitable product exists, so the choice favours the adviser.
Conclude: both disclosure and client-interest principles are breached.

Answer: It is a violation of the code of conduct, because the adviser failed to disclose a conflict of interest and did not put the client's interest first.

Example 2

A client is unhappy with an adviser's reply to a written complaint. What is the correct next step?

Show the solution

Note that the client has already approached the adviser, the first layer.
The next layer is SEBI's online platform, SEBI SCORES, where the complaint is lodged and tracked.
If still unresolved, the client may use the ODR mechanism, arbitration or other legal remedies.
Reject options such as dropping the matter or sending it first to a civil court.

Answer: The client can lodge the complaint on SEBI SCORES, and later use ODR, arbitration or other legal avenues if it remains unresolved.

Exam tips

Scenario questions usually hide one breach, such as non-disclosure, a guarantee or a confidentiality lapse. Find it first.
Know the order of redress: adviser, SCORES, ODR or arbitration. Order-based traps are common.
On a 2-mark caselet question a wrong answer costs twice as much, so eliminate carefully before guessing. Negative marking is 25% of the marks for the question.
Check exact figures and timelines in your current NISM workbook, because they are revised.

Practice questions from Key Regulations

Code of Conduct, Grievance Redressal and Penalties 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, Grievance Redressal and Penalties: frequently asked questions

What is the code of conduct for investment advisers under SEBI?

It is a set of principles in the SEBI (Investment Advisers) Regulations, 2013. It covers honesty, due diligence, client interest, disclosure of conflicts, suitability, confidentiality and compliance. Breach is a violation.

How do I file a complaint on SEBI SCORES?

You register on the SCORES platform and lodge the complaint online against the entity concerned. SEBI then takes it up with that entity and you can track its status. Try the adviser's own grievance process first.

What penalties can SEBI impose on an investment adviser?

SEBI can issue warnings and directions, impose monetary penalties, suspend or cancel registration, and bar a person from the market. Serious cases can lead to prosecution. The action depends on how grave the violation is.

Is arbitration the same as SCORES?

No. SCORES is a complaint platform through which SEBI follows up with the entity. Arbitration and ODR are dispute resolution routes where a neutral process decides or settles the dispute.