SEBI would prefer to keep individual IA away from distribution services, but open to dialogue: Ananth Narayan

Corporate IAs are allowed to distribute financial products like mutual funds through a separately identifiable department or division (SIDD), but individual IAs are not allowed to do distribution.

The market regulator seems inclined to keep individual-run investment advisory (IA) services away from distributorship, going by what SEBI’s Whole-time Member Ananth Narayan said on March 21.

Narayan was speaking at Aspire 2025, an event organised by Association of Registered Investment Advisers (ARIA).

Corporate IAs are allowed to distribute financial products like mutual funds through a separately identifiable department or division (SIDD), but individual IAs are not allowed to do distribution.

As Vivek Rege, founder and CEO of VR Wealth Advisors, who was asking questions to Narayan pointed out a large majority of IAs are individuals and they would have started their business as a distributor. He asked whether the regulator would consider allowing individual IAs to also do distribution.

To this Narayan said that the regulator is happy with the present IA model for the alignment it brings with the client’s interests.

That is, the IA is now paid by the client investor but a distributor would be paid by the financial product’s maker like a mutual fund house.

Narayan said that they (the regulator’s officials) are always worried about what is driving an intermediary's actions. "Is it client's best interest? Or is it things like commission? In the case of the IA, that fear is minimized because, after all, you're not really getting paid by the producer.”

Currently, the IA model is not “being sullied by distributor fees”," he added.

The regulator also does not want a person with an IA licence running a distributorship under their spouse’s or sibling’s name, he said. "We've tried to keep that (the advisory and distributorship) separate. That's a regulatory intent," he explained.

However, Narayan added that the regulator wants the number of IAs to go up and therefore is open to discussing any of their concerns, including that of allowing individual IAs to run distributorship. “We need this ecosystem to grow. So, we will have that dialogue with you," he added.

Building trust

Narayan also spoke about the need for the industry to build trust with the regulator.

He said that for this the industry should proactively alert SEBI to bad practices in the market.

"It would be really trust enhancing if before we spot something going wrong in the ecosystem, you tell us about it," he said.

"It works best when there is a trusted relationship,” Narayan said, adding that the relationship between the IA industry and SEBI has definitely improved over the last two to three years.