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

An individual investment adviser registered with SEBI offers advice to a client for a fee. Which of the following is consistent with the regulations on segregation of advisory and distribution activities?

The adviser cannot sell distribution services to advisory clients directly. Any distribution must be done by a separate, arm's-length entity with separate agreements, and no commission can be taken on recommended products. Oral disclosure, lower fees or using family members do not remove the conflict of interest the rule targets.

  1. AThe adviser may offer distribution services to the same client through a separate, arm's-length entity under separate client agreementsCorrect
  2. BThe adviser may receive commission on products it recommends if the client is told orally
  3. CThe adviser may distribute products to advisory clients directly if it charges a lower advisory fee
  4. DThe adviser may take distribution fees from an advisory client through family members

Explanation

Advisers must not provide distribution services to advisory clients, and the distribution services must be kept at arm's length through separate entities, with family members and associates also covered. Oral disclosure does not permit commissions, and a lower fee does not change the prohibition. Routing fees through family members is expressly caught.

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