Usage of Brand Name/Trade Name by Investment Advisers (IA) and Research Analysts (RA)

Swetha Dhinesh

14 Apr, 2023

The Securities and Exchange Board of India (SEBI) has just released a circular on the use of brand names or trade names by investment advisers and research analysts the next day after issuing a comprehensive set of regulations for advertisements published by these firms.

In a circular published on April 6, 2023, the Securities and Exchange Board of India (SEBI) outlined new rules for investment advisers (IA) and research analysts (RA) regulating the use of trade names, brand names, and logos in their marketing materials and communications. The circular encourages transparency, prevents investor uncertainty, and ensures legal compliance.

Investment Advisers

A company or individual with a government registration enabling them to select, manage, and suggest investments for customers is known as an investment adviser. Stock brokers are another name for investment advisers.

Investment advisers often offer continuing advice on purchasing, selling, and holding investments. They also keep an eye on your investments’ performance and their compatibility with your overall financial goals. The total cost of all the assets stored in your account with the adviser is often used to determine the charge you will pay for this assistance. You might have to pay additional fees to maintain your account and the investments you buy, sell, or hold. Moreover, advisors could offer financial planning services or guidance on asset allocation or market trends.

Research Analysts 

Financial data is gathered by research analysts, who then analyse it, draw logical conclusions, and create a research report. A research analyst is an expert in finance who collects, examines, interprets, and creates research reports on securities, stocks, and other assets.

The primary responsibility of a research analyst is to conduct research in particular disciplines, analyse the data, interpret the results, and communicate the findings to a targeted audience with interests in marketing, finance, operations, and other related sectors.

The reason behind the circular by SEBI on the use of a brand name or trade name by Research Analysts (RA) and Investment Advisers (IA)

When selling their services, some investment advisers and research analysts utilise their brand name, trade name, or logo more prominently than their name, as it is registered with SEBI in their advertisements, websites, publications, client correspondence, and other documentation. The brand name, trade name, or logo may or may not be connected to the name of the IA or RA as registered with SEBI, which could mislead and create confusion in the minds of investors.

The circular requires investment advisers and research analysts to:

1. Use the registered name and information prominently.
2. Clearly Display Registered Information
3. Give details about the compliance and grievance officers
4. Add a Disclaimer in the advertisement
5. Prohibition of usage of the SEBI logo

Key Points of the Circular

While IA and RA may use the brand name, trade name, or logo, they must make the following provisions to ensure that such use is transparent: 

• In their portal or website, if there is a notice board, display boards, advertisements, publications, know-your-client forms, and client agreements, it must prominently display information such as the name of the IA/RA as registered with SEBI, its registration number, its logo and its complete address with telephone numbers.
• In statements, reports, or any other form of correspondence with the client, the name of the RA/IA as it is registered with SEBI, its registration number, its logo, its telephone number with complete address, the name of the compliance officer, his telephone number, and his email address, as well as the telephone number, name, and email address of the grievance officer or the grievance redressal cell, must be prominently displayed.

• Disclaimer: If there is a portal or website, it must state that “Registration granted by SEBI, membership of BASL (in the case of IAs), and certification from (NISM) National Institute of Securities Market in no way performance guarantee of the intermediary or provide any return assurance to investors.” This statement must also appear on notice boards, display boards, publications, know-your-client forms, client agreements, statements or reports, and any other correspondence with clients.

• The circular explicitly prohibits investment advisors and research analysts from using the SEBI logo in any of their documents or correspondence.

Disclosure of the Advertisement

According to the directive published on April 5, IAs and RAs refrain from making untrue, misleading, biased, or deceptive statements based on projections or assumptions.

Some of the disclosures in the advertisement are:

• These organisations are also prohibited from utilising extensive technical or legal terminology and including information which may mislead the investors. Also, the regulator has outlawed remarks intended to take advantage of investors’ ignorance or lack of experience. 
• These organisations must provide the IA/RA’s name, registered office address, SEBI Registration Number, and other regulatory information in the advertisement.
• The official website hyperlink should be included in such SMS/Message/Pop-up, etc. The website must contain all such information if the mode of advertisement is SMS/Message/Pop-up, social media, etc., and the details such as full name, logo/brand name, full registered office address, SEBI registration number, membership number of a SEBI recognised supervisory body, and standard disclaimer are not mentioned.
• Individual IAs who are paid on a fee basis rely on word-of-mouth rather than advertising. Also, how the prior approval process for advertisements will operate is still being determined. If these compliances need the regulator to approve every communication, it will be difficult. Each regulation increases investor protection, but we must wait to see how these rules are put into practise.
• Also, IAs/RAs must now include the customary disclaimer, “Securities market investments are subject to market risks,” in all their ads and communications, much like mutual funds and stocks. Before making an investment, carefully review all the relevant documentation.
• “The recommendations are in the right direction, but a precise definition of what constitutes an advertisement or not should be provided. 

Conclusion

These rules will be in effect as of May 1, 2023. The Securities and Exchange Board of India Act, 1992, Section 11(1)^[1], which gives SEBI the responsibility to safeguard investor interests, encourage the growth of the securities market, and regulate the market appropriately, is the legal basis for the issuance of the circular. This circular can be seen in the “Legal Circulars” section of the SEBI website at www.sebi.gov.in.

Also Read:
Advertisement Code for Investment Advisers (IA) and Research Analysts (RA)
SEBI Research Analyst Registration: Eligibility Requirements and Procedure