Sebi Allows Investment Advisers, Analysts to Charge Advance Fees for Up to a Year

Mumbai, Mar 24 (PTI) Capital markets regulator Sebi board on Monday decided to allow investment advisers and research analysts to charge advance fees for up to one year.

Under the existing rules, investment advisers (IAs) can charge fees in advance for up to two quarters if agreed upon by the client, while for research analysts (RAs) it was only for a quarter.

Sebi said that IAs and RAs regulations were earlier rationalised to address many concerns of the industry. Most of the changes have been welcomed by them. However, concerns remained on some of the fee-related provisions which restricted collection of advanced fees by IAs/ RAs to six months or three months fee.

"In order to address those concerns, the board has decided that if agreed by the client, IAs and RAs may charge fees in advance up to a period of one year. Earlier, IAs and RAs were allowed to charge advance fees for a maximum period of two quarters and one quarter respectively," Sebi Chairman Tuhin Kanta Pandey told reporters here.

He further clarified that the compliance requirements related to fee limits, payment modes, refunds, and breakage fees will only be applicable to individual and Hindu Undivided Family (HUF) clients.

In case of non-individual clients, accredited investors, and in case of institutional investors seeking recommendation of proxy adviser, fee related terms and conditions will be governed through bilaterally negotiated contractual terms.

Sebi had initially introduced limits on advance fees to protect investors from being locked into long-term payments for services they may not find satisfactory.

To give a fillip to issuance of and trading in lesser rated debt securities, Sebi said that investments of Category II alternative investment funds (AIFs) in listed debt securities rated ‘A' or below will be treated as akin to investments in unlisted securities for the purpose of their compliance with minimum investment conditions in unlisted securities.

Currently, Category II AIFs are required to hold a majority of their investments in unlisted securities. The recent changes to Sebi ListingObligations and Disclosure Requirements Regulations (LODR) 2015, require that any entity that has issued listed debt securities can issue fresh debt only in listed form.

With these and other related changes, there is a likelihood that debt securities that could have been issued in unlisted form, will now have to be listed.

The resultant drop in availability of unlisted debt securities can come in the way of AIFs complying with the minimum investment norms in unlisted securities, Sebi said. To address this, the Sebi board approved a proposal in this regard.