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

A registered individual investment adviser also wants to distribute mutual fund products to the same clients. Under the regulations, what is the correct position?

An individual investment adviser cannot provide both advisory and distribution services to the same client; the two activities must be kept segregated to avoid conflicts of interest. Client consent or commission disclosure does not permit combining them for that client.

  1. AHe must maintain segregation between advisory and distribution activities and cannot offer both to the same clientCorrect
  2. BHe may do both for the same client if the client signs a consent form
  3. CHe may distribute only direct plans earning trail commission
  4. DHe may distribute any product provided he discloses the commission in an annual statement

Explanation

To avoid conflicts of interest, the regulations require segregation of advisory and distribution activities; an individual adviser cannot provide distribution services to advisory clients, and family members' distribution for the same client is also restricted. Consent or disclosure does not remove this prohibition.

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