SEBI Allows Investment Advisers to Advertise Verified Performance Metrics

In a significant shift, the Securities and Exchange Board of India (SEBI) has amended its regulations to allow registered investment advisers (RIAs) to advertise their past performance. However, there is a catch—this performance must be verified through a newly introduced mechanism known as the Past Risk and Return Verification Agency (PaRRVA).

What Has Changed?

Until recently, SEBI regulations strictly prohibited investment advisers from referencing past performance in their advertisements. The rationale behind this was to protect investors from potentially misleading or exaggerated claims that were not backed by independent validation.

In its latest circular, SEBI has now amended this regulation, providing RIAs with the opportunity to share performance-related metrics, but under strict conditions.

Introduction of PaRRVA: A New Verification Mechanism

To bring credibility and standardisation to performance metrics, SEBI has introduced PaRRVA—a concept akin to a credit rating agency but tailored specifically for the investment advisory space.

PaRRVA will be responsible for verifying risk-return metrics claimed by RIAs. Only after verification by PaRRVA can advisers include such metrics in their promotional materials.

SEBI’s Official Statement on the Amendment

In its circular dated May 21, 2024, SEBI stated: “In order to enable IAs and RAs to avail the services of PaRRVA and make claims in their advertisements using risk-return metrics verified by PaRRVA, it has been decided to amend the above-mentioned clauses of the Master Circular for IAs and RAs…”

This amendment brings an official structure to the process, ensuring that only metrics validated by SEBI-recognised agencies can be used for public promotions.

Criteria for Becoming a PaRRVA

SEBI has also issued operational guidelines detailing the eligibility criteria for entities aspiring to become a PaRRVA. These include:

• Minimum 15 years of existence
• Net worth exceeding ₹100 crores
• A client base of over 250 issuers with listed or proposed-to-be-listed debt securities
• A fully functional online investor grievance redressal mechanism 

Essentially, SEBI has opened the door for established Credit Rating Agencies (CRAs) to become PaRRVA entities, subject to these qualifications.

Significance of the Move

This development marks a pivotal moment in India’s investment advisory landscape. It strikes a balance between transparency and investor protection. While RIAs gain the ability to showcase their past performance, SEBI ensures that such claims are credible and standardised through third-party verification.

Conclusion

SEBI’s latest amendment offers a structured pathway for investment advisers to advertise their performance in a manner that is both transparent and trustworthy.

The introduction of PaRRVA as a verification agency adds a much-needed layer of authenticity, ensuring that retail investors are not misled by unverified or inflated claims. While this move is aimed at enhancing transparency, it also raises the bar for RIAs wishing to differentiate themselves in a competitive market.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.

Investments in the securities market are subject to market risks, read all the related documents carefully before investing.