Investment advisers can charge fee up to ₹1.25 lakh, says Sebi

According to the Sebi guidelines, new clients will have to choose between distribution and advisory services

Neil Borate
First Published25 Sep 2020, 07:25 AM IST
Advisers with over 150 clients must corporatize their practice, or stop signing up new clients, Sebi directed. mint
Advisers with over 150 clients must corporatize their practice, or stop signing up new clients, Sebi directed. mint

The Securities and Exchange Board of India (Sebi) on Thursday capped the advisory fees charged by registered investment advisers (RIAs) at 2.5% of assets under advice, or 1,25,000 if they charge a flat fee.

Advisers with over 150 clients must corporatize their practice, or stop signing up new clients, under Sebi’s final guidelines on RIAs —first proposed in January and finetuned in July.

RIAs must also sign new investment advisory agreements with clients by 1 April 2021, incorporating the terms laid down by Sebi.

Existing clients can opt for either the advisory or distribution services of the RIA at a group or family level, Sebi said, adding clients should not be forced to redeem existing assets under advisory or distribution.

“Sebi has allowed grandfathering of existing assets of clients so that nobody will have to redeem based on which service they choose,” said Lovaii Navlakhi, founder, International Money Matters Pvt. Ltd. New clients will have to choose between distribution and advisory services.

‘Client’, according to Sebi guidelines, includes dependent family members of a client, which would exclude a spouse with own income. “The definition of family as dependent on a single source of income can help advisers distinguish between independent family members, but it could push some individual RIAs closer to the upper limit of 150 clients,” said Navlakhi.

Sebi has allowed RIAs to charge a fixed fee up to 1,25,000, up from the 75,000 it had proposed in January. As a percentage of assets under advice, they can charge 2.5%.

“The fee structure doesn’t allow for much flexibility, say, specific fees for project work on particular client finances, but at 2.5%, the cap is liberal,” said Navlakhi.

RIAs must also comply with the qualification thresholds proposed by Sebi, such as post-graduate qualifications in certain subjects and five years of experience, and two years for those offering investment advice. However, existing RIAs who are 50 years or older have to hold NISM-accredited certifications for offering services.

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First Published:25 Sep 2020, 07:25 AM IST
HomeMoneyPersonal FinanceInvestment advisers can charge fee up to ₹1.25 lakh, says Sebi

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