Zerodha makes investment advisory certification a must for finfluencers

Zerodha Broking Ltd is asking authorized persons (APs) to clear the first level of investment advisory certification—NISM Series X-A—which is meant for candidates aspiring to be registered investment advisors (RIAs). 

To be eligible for an RIA licence, candidates must clear this exam and its second component, NISM Series X-B. 

India's second-largest stock broker also wants APs to come for an interview at its office, according to a company e-mail, a copy of which has been seen by Mint.

Also Read: Meet the new YouTube finfluencers: teens ‘making 36-40%’ returns trading options

Sebi's check on finfluencers

This follows the market regulator's clampdown on social-media financial influencers, or influencers. 

The broking industry, as a whole, leveraged the power of finfluencers to grow its business. Finfluencers, in return, earned referrals or affiliate commissions from brokers. These were essentially a cut of all the broking commissions their followers generated while trading.

On 22 August, Zerodha stopped its popular referral or affiliate programme after the National Stock Exchange of India's (NSE's) 14 August circular mandated that all referral fee earners be registered as APs with brokers and stock exchanges.

Earlier, a July 2024 Sebi board decision mandated the separation of Sebi-regulated entities from unregulated entities, including the severance of financial links such as affiliate commissions.

Also Read: Why Sharan Hegde’s financial advisory business is a test for Sebi's ad rules

Moreover, Zerodha has started insisting that APs have at least 500 clients and generate monthly commissions of ₹50,000. This has left some affiliates upset at the disparity viz-a-viz other industry players.

“Zerodha wants to discourage AP registration so they can keep the trail commission for themselves that they were earlier paying affiliates,” said a broking industry executive on the condition of anonymity.

Zerodha declined to respond to Mint queries on the subject.

Other brokers such as Upstox Securities Pvt. Ltd and Angel One require APs to have cleared the 10th standard. 

Also Read: Sebi tweaks stocks’ F&O norms, curbs use of finfluencers

Groww, India's largest broker, does not use the services of APs. Instead, it directly sources clients through its social-media handles.

The industry has also found a workaround to deal with another aspect of the 14 August NSE circular. As per exchange rules, an AP can only be tied to one broker. Notably, finfluencers used to tie up with multiple brokers at once.   

Now brokers are quietly nudging finfluencers to make their family members APs, which allows them to strike multiple tie-ups. 

Mint has viewed one such message from one of the country's largest brokers. 

Upstox and Angel One did not respond to Mint's queries on industry practices.

In a bid to encourage formal routes to financial information and check the rise of unregulated financial influencers on social media, Sebi has proposed to lower eligibility criteria, scrap networth requirements, and ease fee regulation to attract more professionals to become RIAs and research analysts.

The market regulator released a consultation paper in this regard in August.