SEBI Registration

SEBI Registered Investment Advisors vs Stock Broker vs Dealers

Investors frequently mix up the Stock Brokers and SEBI Registered Investment Advisors even though they both conduct different works and functions. Today, we’ll examine both of these entities and determine the tasks both are performing in the stock exchange. It should be emphasised that SEBI, also known as the Securities and Exchange Board of India, regulates both entities. Before investing in the stock market, having a broker is a requirement, but having an advisor is more of a requirement. According to SEBI regulations, an advisor is never permitted to offer brokerage services. Thus, you should choose both of them separately for your investing needs.

Indian Stock Market

The provisions of the Securities and Exchange Board of India Act, 1992^[1] govern the stock markets in India. Under the securities contracts (Regulation) Act of 1956, the stock exchanges are under the general supervision of the Securities Exchange Board of India, which was established by the SEBI Act of 1992. On February 21, 1992, SEBI was established with the dual goal of regulation and growth. The current broker regulations are large enough to safeguard investors’ needs.

The Securities Contract (Regulation) Act of 1956 recognises stock exchanges as the sole centres for the dealing of securities. The majority of stock exchanges in India are mutually owned, which is advantageous in terms of tax breaks and regulatory compliance. Only brokers have access to an exchange’s trading platform. Demutualised exchanges permit brokers unrestricted access and exit. The broker makes exchanges on behalf of his clients or on his own account. The eligibility requirements and the extent to which the government is involved in stock exchange management vary by country.

What is Investment Advice, and Who is a Registered Investment Advisor Under SEBI?

Investment Advice means advice relating to buying, selling, investing in, or otherwise dealing in securities or investment goods, and also it includes financial planning and advice on investment portfolios that incorporate securities or investment products that are given to clients for their benefit. For the purposes of these laws, investment advice given through a generally accessible medium – such as a newspaper, magazine, broadcasting, electronic or telecommunications shall not be deemed to be considered investment advice.

Registered Investment Advisor – An individual or business offering personal financial advice is referred to as Registered Investment Advisor. In order to serve their customers’ best interests, RIA has a fiduciary duty to provide financial guidance. As mentioned above, they are registered with SEBI, an organisation that regulates the market.

Compared to distributors of mutual funds, they owe their consumers additional obligations. Investment advisors create a financial strategy for their investors after considering their objectives, resources, and existing circumstances. They charge a fee for their services. It is a flat fee for the financial plan and an ongoing fee for the service they provide.

Regulations of SEBI for Registered Investment Advisers

On April 21, 2013, the SEBI (Investment Advisers) Regulations went into effect. Conditions for registration, certification, capital adequacy, risk profiling and suitability, disclosures to be made, and code of conduct are outlined in the regulations. 

According to IA regulations, no one may function as an investment adviser or represent themselves as one on or after the start of the IA Regulations unless they have obtained a certificate of registration from SEBI. On the SEBI website, you can access the IA regulations. If it is found that someone is engaged in offering investment advising services without first registering with SEBI, appropriate action under the 1992 SEBI Act may be taken.  

Who are Stock Brokers?

Stock Brokers are members of the stock exchange. They offer trade execution services to their investor clients and charge a fee as a brokerage in exchange for their services. Before you start trading or making investments on the stock market, you must have a trading account with one of the stock brokers. Your broker will earn more money the more you trade in the market.

They must be a member of at least one stock exchange and have a current execution service. The client may file a complaint against the broker in SEBI’s grievance redressal system known as SCORES if the broker fails to deliver suitable services to the client.

Regulation of Stock Brokers in India

Although stock brokers are crucial to helping their clients to make money, it is also important to consider that stock brokers being in an authoritative position may hurt the clients by misusing the confidence reposed in them. Thus, in the public interest, the SEBI establishes, oversees, and issues rules for their operation.

As a result, the Securities and Exchange Board of India Act of 1992, the Securities Contract Regulations Act of 1956, and the Securities and Exchange Board of India (Stockbrokers and Sub-brokers) Regulations 1992 are all defined and administered by the stockbrokers accordingly.

Every person must first become a stock exchange member and go through the SEBI compulsory registration process before beginning to act as a stockbroker. A registered individual is required to make their registration information visible on all of their official documents and websites. Additionally, you can double-check their names on the SEBI website.

Sub-Broker

A sub-broker is someone who, despite not being a member of a stock exchange, works as an agent for a stock broker to help investors buy, sell, or deal in securities through such stock brokers. He is connected to the securities market and is not permitted to purchase, sell, or deal in securities unless the requirements of the certificate of registration he acquired from SEBI and had it issued in line with Rules and Regulations have been met. Additionally, he acts as the broker’s agent and completes transactions on his behalf. 

Who is a Dealer?

The term “dealer” is frequently used to refer to a person or business that purchases and sells securities on their own account, whether directly through a broker or in another way. Dealers play a crucial and significant role in the market. The dealer acts as a principal in trading in his own account. The dealer is in charge of generating market liquidity and enhancing chances for long-term growth. Making securities markets and providing investors with investment-related services is another duty of a dealer.

Dealers are significant players in the securities industry, which is something to keep in mind when discussing them. They have a variety of significant tasks to complete in the industry. The dealers underwrite securities, make markets in securities, and offer investors investment services. They contribute significantly and are important to the market’s liquidity.

Investment Advisors vs Stock Brokers vs Dealers

Basis of Information	Investment Advisors	Stock Brokers	Stock Dealers
Advisory services	Investment advisors mainly focus on providing research-based trade recommendations and investment advice.	Brokers provide advisory services to their clients; moreover, investors do not prefer to opt for advisory services from stock brokers	Stock Dealers are not providing advice. Instead, they listen to advice from Investment Advisors and Stock Brokers for their investment.
Information and communication	Advisers help you to  understand meaningful and relevant information because they design  their profession around helping investors.	Here, clients could be more responsible for conducting their research. The main goal of brokers is to provide information on how to invest in securities successfully.	Dealers can obtain information by conducting relevant research about securities, or they can obtain information from investment advisors.
Professional Licenses	They must have a license to qualify to  operate as investors’ representatives. Those who acquire this license are allowed to handle the issue of ethics, portfolio, fiduciary accountability and investment ideas.	For a broker to sell securities, a professional license is mandatory.	For Dealers license is not mandatory to buy and sell securities.
Functions	Investment advisors create a financial strategy for their investors after considering their objectives, resources, and existing circumstances.	Stockbrokers work with investors for  trade execution and work to purchase equities at a profit-maximising level.	Dealers play a crucial and significant role in the market. The dealer acts as a principal in trading in his own account.
Income	They charge a fee for their services. It is a flat fee for the financial plan and an ongoing fee for the service they provide.	Stockbrokers are compensated per trade basis, where their income is proportional to the number of trades they execute.	Investors are essential figures in the market, and they are not getting paid. They are getting profits through investment in buying and selling securities.

Conclusion 

Before starting an investment in the market, as an investor, you must have a relationship with a stockbroker. People often ignore investment advisors, which is where they fall short as investors. Market analysis and research are crucial for being a successful investor. By conducting market research on your behalf and making suggestions for you based on it, an investment advisor is helpful to you. All you need to do is place orders by following those recommendations from investment advisors and stock brokers after understanding the market for your successful investment.

Also Read:
Stock Broker License Registration
Stock Broking License: An Overview