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

Mr. Rohan Mehta, an investment adviser, also runs a distribution business for mutual funds through a separate arm of the same entity. Under the Investment Advisers Regulations, which approach is consistent with the rules on conflict of interest?

Advisory and distribution activities must be segregated. An investment adviser cannot offer distribution services to its advisory clients, and the same applies to its group and family arms, since commissions would compromise the objectivity of advice.

  1. ADistribution and advisory services to the same client may be offered by the same entity without separation
  2. BThe adviser may receive distribution commission from a product recommended to an advisory client
  3. CAdvisory and distribution activities must be kept separate, with no distribution services to advisory clients of the adviser or its groupCorrect
  4. DOnly disclosure in an oral conversation is enough to manage the conflict

Explanation

The regulations require segregation of advisory and distribution activities; an adviser must not provide distribution services to its advisory clients, and group or family entities must not do so either for those clients. Oral disclosure and commission are not substitutes.

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