Sebi Proposes 1-Year Advance Fees for Investment Advisers, Research Analysts

New Delhi, Feb 12 (PTI) Capital markets regulator Sebi on Wednesday issued a consultation paper proposing amendments to allow investment advisers and research analysts to charge advance fees for up to one year.

Under the existing rules, the 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 one quarter.

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.

However, the regulator has received representations from RAs arguing that the existing restrictions disincentivise them from offering long-term recommendations, cause inconvenience and increase costs for both clients and research analysts.

The Securities and Exchange Board of India (Sebi) has invited public comments on the proposals that will be submitted by February 27.

"The objective of the provision of the advance fee was to protect the interests of the investors, so that they do not get stuck with an IA/RA just because they have paid the money in advance to the IA/RA. Thus, the provision was made to limit the period for which IA/RA could charge in advance for," Sebi said in a consultation paper.

According to industry representations, the short billing cycles encourage advisers and analysts to focus on short-term gains rather than long-term investment strategies.

The regulator noted that concerns regarding pre-mature termination of agreements are mitigated by refund provisions, which require RAs to return proportionate fees and IAs to refund the fees for unexpired period, with a maximum retention of one quarter's fee as breakage cost.

Sebi has proposed that the compliance requirements related to fee limits, payment modes, refunds, and breakage fees apply 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, the paper said.

The proposals align with Sebi's objective of easing compliance for market participants while ensuring investor protection.