A Genuinely Common Business Question With a Genuinely Specific Regulatory Answer
Many CA firms want to build a broader wealth and compliance offering under one roof, rather than referring investment-related conversations away to an external adviser. This is entirely achievable — SEBI's framework doesn't prohibit it — but it requires deliberate structuring around the arms-length relationship the regulations specifically demand.
The Core Requirement: Genuine Segregation, Not Just a Policy Document
Firms combining tax advisory (or any other primary professional service) with IA activity under part-time registration must provide an undertaking of arms-length operation between the two — with clear segregation at all client-engagement stages. This isn't satisfied by a policy statement filed once at registration; it needs to show up in how the firm actually operates day to day.
What Genuine Segregation Looks Like in Practice
- Distinct engagement documentation — a client receiving both tax advisory and investment advisory services should have separate engagement letters or agreements for each, not one blended document that obscures which service is which
- Distinct fee structuring — advisory fees subject to IA fee caps and disclosure rules need to be clearly identifiable and separately computed from tax advisory fees, which aren't subject to the same regulatory fee constraints
- Clear internal role definition — where the same partner delivers both services to a client, the firm should be able to demonstrate which specific interactions constituted IA-regulated advice versus general tax/compliance service
- Separate record-keeping trails — IA-specific record-keeping obligations (client agreements, risk profiling, advice records) need their own clean documentation trail, distinguishable from the firm's general client-service files
The Mandatory Disclaimer on Non-IA Work
Every invoice or communication relating to the firm's non-IA services must carry a prominent disclaimer (minimum 10-font size) noting that activity falls outside SEBI's purview. This is a specific, checkable compliance item — not a general best-practice suggestion — and needs to be built into the firm's standard invoice templates and client communication formats across the board, not applied selectively.
Should the IA Activity Sit in the Same Legal Entity or a Separate One?
This is a genuine structuring choice. Some firms register part-time IA activity under the same partnership/LLP that runs their broader practice; others deliberately house the IA-registered activity in a distinct entity specifically to make the arms-length separation structurally, not just procedurally, clean. There's no universally correct answer — it depends on firm size, client base, and how much separation the partners want between the two service lines' liability and reputational exposure.
Why This Structuring Decision Deserves Real Planning, Not a Default
Firms that treat the arms-length requirement as paperwork to file once at registration, rather than an operating discipline, are the ones most likely to face a difficult inspection finding later — precisely because the segregation, when tested, turns out to be nominal rather than real. Building this properly from the outset is considerably easier than retrofitting genuine separation into an already-blended practice.
Structuring Your Firm's Dual Service Offering Correctly
We help CA firms structure the genuine arms-length separation between tax/compliance advisory and IA activity — engagement documentation, fee segregation, disclaimer implementation, and internal process design that would hold up to a real SEBI/IAASB inspection.
Building out an investment advisory offering alongside your existing CA practice? Let's structure the arms-length requirement properly from day one — talk to Anuj Desai & Associates.
This article is for general informational purposes and does not constitute regulatory or structuring advice specific to any firm's circumstances.