NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Ethical Issues
Caselet: Anita, an investment adviser, has a client Vikram whose portfolio she manages on an advisory basis. Anita's relative runs a distribution firm. Which arrangement is consistent with the SEBI requirement of segregating advisory and distribution activities for the same client family?
Advisory and distribution services must not be provided to the same client or family. Anita and her relative's distribution firm therefore cannot both serve Vikram's family, so he should be served by only one. Commission on advisory clients' investments is not permitted, and verbal disclosure does not cure the conflict.
- AAnita gives advice to Vikram while her relative's firm distributes products to Vikram's family, with no segregation needed
- BAnita's advisory and her relative's distribution services must not be provided to the same client or family, so Vikram should be served by only oneCorrect
- CAnita may receive commission from her relative's firm provided she tells Vikram verbally
- DAnita may charge advisory fees and also receive distribution commission on the same client's investments
Explanation
Under the Investment Advisers Regulations, an adviser must not provide distribution services to advisory clients, and the distribution services must be kept separate, including for family members and related persons. Services to the same client family cannot be split between the adviser and her relative's firm. Verbal disclosure or taking commission does not cure this.
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