SEBI aims to boost quality of PMS, investment advisories and analyst firms

Market regulator SEBI has brought in new qualification norms for portfolio managers, research analysts and investment advisors in a recent notification.

According to the SEBI norms issued last week, SEBI will recognise post-graduate programme in the securities market of at least a year offered by the National Institute of Securities Markets (NISM) as the qualification for investment advisors, research analysts and portfolio managers.

NISM and courses offered

NISM was set up by SEBI in 2006 in a bid to build capacity and boost the quality of the securities market. The institute has six schools of excellence and works at shaping the futures of those interested in the securities market. Among a range of programmes, NISM also offers a post-graduate program in portfolio management, investment advisory and research analysis aimed at those who have a passion for the securities markets. The programme is scheduled over the weekends for 15 months and the eligibility norms are a Bachelor’s Degree of at least three years with a minimum of 50 per cent marks for those in the general category and 45 per cent for those in the reserved category. This programme is recognised by SEBI under the Portfolio Managers Regulations, 2020, Investment Advisers Regulations, 2013 and Research Analysts Regulations, 2014.

This programme is also aimed at employees of portfolio management services, investment advisories and research analyst forms, apart from mutual fund AMC and distributors firms, merchant bankers, stockbroking firms, listed companies and banks among others.

Portfolio management services regulations over the years

Portfolio management service (PMS) is offered by professionals to investors who need customised solutions to manage their wealth. PMS provides investment in securities through portfolios.

SEBI has also amended the Portfolio Management Services regulations in connection with NISM certification requirements. This follows the amendments that were approved by the market regulator’s board in February this year.

The market regulator first brought the Portfolio Managers Regulations in 1993 aimed at the operation and registration of portfolio managers. Later, in 2019, SEBI sought comments and suggestions from the public on amendments to the PMS regulations. Eventually, the PMS Regulations 2020 was brought in.  The PMS Regulations 2020 stipulates that portfolio managers shall not accept securities or funds (minimum investment amount) that are worth lower than Rs 50 lakh from their clients. Also, the PMS 2020 regulations say that portfolio managers need to be registered with SEBI. The net worth that is required for a fund manager would be Rs 5 crore.

According to the February 2020 circular, portfolio managers are needed to use the services of only those distributors who have a valid registration number of the Association of Mutual Funds in India (AMFI) or those who have cleared the NISM-Series – V-A exam. Also, PMs would be required to pay commission to distributors only on a trial basis, and only from the fees that are received by PMs. The registration certificate for a portfolio manager is valid for three years, as per the rules.

Other PMS, investment advisory and research analyst norms

In the PMS regulations of 1993 or 2020, there was no concept or definition of ‘material change’. Further, as per the February 2020 circular, material change was described as “change in control” of the portfolio manager, fees charged, principal officer or charges pertaining to the services offered, investment approaches offered and other similar charges that are specified by SEBI. If it is a listed company, the concept of change in control is defined in the PMS regulations 2020 by linking it to the SEBI Regulations of 2011 that pertain to the acquisition of shares and takeovers.

While these are rules for portfolio managers and portfolio management services, SEBI has also from time to time issued guidelines for registered investment advisors on issues pertaining to capping their fees.SEBI Research Analyst Regulations 2014 provides norms for analysts as well. Further, SEBI banned upfront commissions in PMS in 2020, apart from asking portfolio management services to offer direct plans, where investors have to handle their own risk profiling. In the recent past, PMs have begun to furnish quarterly reports to clients in which they have to disclose commission details paid to distributors for clients.

Conclusion

Apart from all these rules, the latest SEBI regulations for portfolio managers, research analysts and investment advisors say that they need to have a post-graduate programme in securities offered by NISM as eligible qualification. The SEBI regulations are aimed at bringing in quality and maintaining high standards among professionals who handle investor wealth.  These changes in PMS regulations are aimed at enhancing disclosure and standardisation of the portfolio management services industry.