Investment Adviser or Research Analyst: which one covers what you actually do

People arrive at this question having already decided the answer, usually wrongly. They assume Research Analyst is the smaller registration and Investment Adviser is the serious one. The registrations cover different activities, and which one you need is decided by what you do for whom.

The short version

Investment Adviser covers advice on securities given to a client for consideration, personalised to that client. Risk profiling and suitability sit at the centre of it. Research Analyst covers research services: issuing a research report or a recommendation on securities, whether or not a fee is charged directly for it.

That last part catches people out. SEBI treats research given to clients who pay you for something else as research provided for consideration. A stock broker who hands research to its broking clients is providing research services for consideration, because the brokerage tariff includes it even if no line item says so.

What is not a research report

SEBI lists the communications that fall outside the definition:

• Comments on general trends in the securities market
• Discussions on broad-based indices
• Commentary on economic, political or market conditions
• Periodic reports for unit holders of a mutual fund or AIF, or for clients of portfolio managers and investment advisers
• Internal communications not given to current or prospective clients
• Offer documents and prospectuses circulated under SEBI regulations
• Statistical summaries of company financial data
• Technical analyses relating to demand and supply in a sector or an index

Trading calls are outside investment advice

A registered Investment Adviser cannot give trading calls, and this is worth reading twice, because the reason is not that they are risky. SEBI defines trading calls as intraday, ultra-short duration, non-delivery based recommendations, or any recommendation that is not personalised to the investor, and then says such calls are not investment advice under the IA Regulations at all. The activity sits outside what the registration authorises.

Who does not need to register at all

The IA Regulations exempt several categories where investment advice is incidental to the main business. Insurance agents advising only on insurance products and registered with IRDA. Pension advisers registered with PFRDA advising only on pension products. AMFI-registered mutual fund distributors advising on the schemes they distribute. Stock brokers, portfolio managers and merchant bankers advising incidentally to their primary activity. Members of ICSI, ICAI, ICMAI and the Actuarial Society of India advising incidentally to their professional work.

The word doing the work in every one of those is incidental. A CA who advises a tax client to put money in ELSS during tax planning is inside the exemption. The same CA running an advisory practice on securities for clients is not, and SEBI says so in those terms. A mutual fund distributor who starts advising on shares, debentures, bonds, derivatives, REITs or InvITs beyond the schemes they distribute needs IA registration.

One more that surprises people: advice given exclusively to clients based outside India is exempt, but advising a Non-Resident Indian or a Person of Indian Origin brings you inside the IA Regulations.

Registration you may not know applies to you

• Proxy advisers must register as Research Analysts, and all of Chapters II to VI apply to them with additional disclosures on the extent of research behind each recommendation.
• A research entity that employs research analysts registers as the entity. The employed analysts do not each get their own certificate, but they must meet the qualification and certification requirements and the trading limits apply to them personally.
• A person outside India can issue research on securities listed in India, after entering into an agreement with a registered research analyst or research entity.
• Investment Advisers, credit rating agencies, AMCs and fund managers do not register under the RA Regulations, but if they circulate research publicly or their people make public appearances, Chapter III still binds them.

You can hold both

An individual or a partnership firm can hold both registrations. You then comply with both sets of regulations and both reporting streams separately, and you undertake to keep the two activities at arm's length with the services clearly segregated from each other. For a practice that both publishes research and advises named clients, that is the honest structure.

The name you use is regulated too

Registered analysts have their own naming rule. The term "research analyst" has to appear in all correspondence with clients, and part-time registrants use the part-time version of the label.