Markets regulator SEBI has proposed a new set of guidelines for research analysts (RAs) and investment advisers (IAs), setting criteria for minimum qualification, deposit requirement, registration, AI usage, fees and rules for model portfolios, among other things.

The deposit requirement for RAs and IAs is Rs 1 lakh for up to 150 clients, Rs 2 lakh for clients between 151 and 300, Rs 5 lakh for RAs managing 301 to 1,000 clients and Rs 10 lakh for those with 1,001 clients and above.

The existing RAs will have to ensure compliance with the deposit requirement by April 30, 2025. For the new applicants, the deposit requirement will become effective immediately from the date of this circular.

Allowing dual registration, SEBI says individuals can now register as both RAs and IAs, provided that their investment advisory services and research services are segregated from each other. SEBI also says a part-time IA, who is engaged in any other business activity/employment which is unrelated to securities, can also apply for IA registration. So, if you are a lawyer or a doctor or a professor and if you are a member of ICAI or ICSI or ICMAI providing their statutory services or an insurance agent having a license from the Insurance Regulatory and Development Authority of India (‘IRDAI’), you can apply for IA registration.

In its guidelines for model portfolios, SEBI says each model portfolio should be benchmarked with appropriate and relevant indices. For example, a model portfolio for auto stocks can be benchmarked with the Nifty Auto Index, a Midcap model portfolio can be benchmarked with the BSE Midcap Index, thematic portfolios with thematic indices, etc. Every model portfolio report will contain disclosure on the benchmark index which should be clearly defined and should be used consistently.

SEBI says research services provided by RAs or research entities will be corroborated by a research report containing the relevant data and analysis forming the basis for such research service. RAs can charge a maximum of ₹1,51,000 per annum per family in the case of their clients who are individuals and Hindu Undivided Family(HUF). The fee limit will be revised and announced once in three years.

In terms of the usage of AI tools by RAs, SEBI says a research analyst who uses artificial intelligence tools will be solely responsible for the security, confidentiality, and integrity of the client data. They will also provide the disclosure of the extent of the AI use in providing research services to their clients. In terms of KYC requirements, RAs will maintain records of interactions, with all clients including prospective clients (prior to onboarding), where any conversation related to its services has taken place.

SEBI also mandates compliance audit requirements for RAs, saying they will have to complete the annual compliance audit within six months from the end of each financial year and submit a compliance audit report to Research Analysts Administration and Supervisory Body (RAASB)/SEBI in one month from the date of the audit report.

SEBI's grievance redressal and dispute resolution rules say RAs will be responsible for resolving grievances in 7 business days and will redress the grievances of the client in a timely manner. Any dispute between the RA and his client may be resolved through arbitration.

In its guidelines to research analysts, SEBI says the revised qualification requirements will not be required for existing individual RAs. However, they should hold NISM certifications.