Client-Level Segregation Mandatory – Advisory-Distribution Switching Banned | SEBI
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- Last Updated on 25 March, 2026
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Issue No. I/7648/2026, Dated: 23.03.2026
The Securities and Exchange Board of India (SEBI) has issued informal guidance on the permissibility of switching clients from distribution to advisory services by an entity registered as an Investment Adviser (IA).
1. Background of the Query
A company sought clarification on whether existing clients could be moved from distribution services to advisory services without liquidating their current holdings.
2. Mandatory Client-Level Segregation
SEBI clarified that under the SEBI (Investment Advisers) Regulations, 2013:
- Client-level segregation is mandatory
- A client cannot simultaneously avail advisory and distribution services within the same group
This requirement is intended to prevent conflict of interest and ensure clear demarcation of roles.
3. No Switching Between Services
SEBI further clarified that:
- Switching a client from distribution to advisory services (or vice versa) is not permitted within the same group structure
This restriction applies irrespective of whether the client continues to hold existing investments.
4. Treatment of Existing Holdings
- Existing investments may continue and are not required to be liquidated
- However, the service relationship cannot be altered from distribution to advisory (or vice versa) within the same group
5. Implications for Investment Advisers
Entities must ensure:
- Strict segregation of advisory and distribution clients
- Clear internal controls to avoid overlap of services
- Full compliance with regulatory requirements to prevent conflicts
6. Objective of the Clarification
The guidance reinforces SEBI’s intent to:
- Maintain transparency and independence in advisory services
- Eliminate conflicts of interest between advisory and distribution models
- Protect investor interests through clear service boundaries
Overall, the clarification underscores that service models must remain distinct at the client level, even if existing investments continue unchanged.
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