Zerodha Mandates Investment Certification for Finfluencers Amid SEBI Crackdown

Zerodha Broking Ltd, India’s second-largest stockbroker, has introduced new measures to ensure greater accountability among financial influencers (finfluencers) and authorized persons (APs) engaging with investors.

The company is now requiring APs, who represent brokers in their dealings with investors, to clear the NISM Series X-A exam, the first level of investment advisory certification. This certification is a critical step for those aspiring to become Registered Investment Advisors (RIAs) in India.

To obtain an RIA license, candidates must pass both NISM Series X-A and its counterpart, NISM Series X-B. Furthermore, Zerodha is mandating that APs participate in in-person interviews at its office, as per an internal company email viewed by Mint.

SEBI’s Crackdown on Finfluencers

The introduction of these new requirements follows an ongoing clampdown by the Securities and Exchange Board of India (SEBI) on unregulated financial influencers. The broking industry has widely used finfluencers to grow their business, often compensating them through referral fees or affiliate commissions based on the trading activity of their followers. However, recent regulatory changes have impacted these practices.

Zerodha recently halted its popular referral and affiliate program after the National Stock Exchange of India (NSE) issued a circular on 14 August 2024, mandating that all individuals earning referral fees must be registered as APs with brokers and stock exchanges.

As per the NSE circular, APs are required to sign written agreements with brokers, which makes the stockbroker directly responsible for their actions. APs are also prohibited from handling funds or securities in their own accounts.

This move follows SEBI's earlier decision in July 2024, which mandated a clearer separation between SEBI-regulated entities and unregulated parties, effectively curbing financial links such as affiliate commissions.

Stricter Requirements for APs at Zerodha

Zerodha has also established new requirements for APs, insisting that they manage a minimum of 500 clients and generate monthly commissions of at least ₹50,000. This change has created friction with some affiliates, who feel the new rules are unfair compared to other industry players. According to a source within the broking industry, these requirements appear to be a strategic move by Zerodha to reduce the number of AP registrations and retain a larger share of the commissions.

Other brokers, such as Upstox Securities Pvt. Ltd and Angel One, have less stringent requirements, with their APs needing only to have cleared the 10th standard. Interestingly, Groww, India’s largest broker, does not use APs at all, instead opting to directly source clients through its social media channels.

Finfluencer Workarounds and SEBI's Reforms

The industry has found ways to navigate some of the restrictions imposed by the NSE's circular, which limits APs to partnering with only one broker. In response, some brokers are reportedly encouraging finfluencers to register family members as APs, allowing them to maintain multiple broker partnerships.

To address the growing influence of unregulated finfluencers, SEBI released a consultation paper in August 2024, proposing relaxed criteria for becoming RIAs and research analysts. These proposed reforms include lowering eligibility criteria, removing net worth requirements, and easing fee regulations to encourage more professionals to join the advisory industry.

Conclusion

Zerodha's move to mandate investment advisory certification for its authorized persons (APs) marks a significant shift in the Indian broking industry. This step is aligned with SEBI's larger crackdown on unregulated financial influencers, aiming to promote transparency and accountability. By requiring APs to clear the NISM Series X-A certification and imposing stricter client and commission requirements, Zerodha is setting a precedent for how brokers will interact with finfluencers in the future.

At the same time, this regulation-driven change is likely to impact the dynamics between brokers and influencers, as referral programs come under increased scrutiny. While some industry players seek workarounds, SEBI's reforms aim to foster a more formalized and regulated advisory landscape.

As more professionals are encouraged to enter the field through eased RIA requirements, the ultimate goal is to provide investors with better-regulated financial advice, reducing the influence of unverified or unregulated sources on social media platforms.

Zerodha’s policy change could signal a broader industry trend toward heightened regulation, which may lead to a more structured and professional financial advisory system in India.