Sebi announces new rules for onboarding of clients by portfolio managers — an explainer

Capital markets regulator Securities and Exchange Board of India (Sebi) on Friday altered the rules to ease the digital onboarding process for clients of portfolio managers.

Sebi had constituted various working groups to recommend measures to simplify and ease compliances. As part of these efforts, a working group was made to review the present regulatory framework under Sebi (portfolio managers) regulations, 2020 and recommend measures to promote ease of doing business for portfolio managers. 

These are some of the changes:

A. A portfolio manager will, before taking up an assignment of management of funds and portfolio, enter into a written agreement with the client that clearly defines the relationship and sets out their mutual rights.

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B. While onboarding a client, a portfolio manager will ensure that the client has understood the fee structure and charges.

The new client has to separately sign the annexure on fees and charges and add a note that they have understood the fee details in the following manner:

A) Handwritten.

B) Typed using a keyboard or written electronically using fingers/pen in case the client is onboarded through digital mode. 

This will be applicable from October 1, 2024. 

The portfolio manager will provide a fee calculation tool to all clients that highlights various fee options with multi-year fee calculations. 

The fee calculation tool will incorporate the high-watermark principle wherever applicable. The link to access the said tool will be provided in advance to all new clients onboarded on or after October 1, 2024.

Additional fee disclosures

In partial modification to the master circular, whenever performance fees are charged to the client, the annexure for fees and charges to the portfolio management service-client agreement will also contain the following additional fee disclosure:

— One-year and multi-year fee illustrations that cover different scenarios i.e., increase in the portfolio value by a certain percentage, decrease in the portfolio value by a certain percentage and when the portfolio value remains unchanged.

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To facilitate ease of understanding of the critical aspects of the portfolio manager-client relationship, the portfolio manager will additionally provide to its client a ‘most important terms and conditions’ document which should be duly acknowledged by the client.