SEBI suggests cap cap on investment advisory fees

(Commerce Rep) Mumbai, Ta. January 16, 2020, Thursday

In order to prevent excessive levy from investors in the capital market and mis-selling-misleading sales, the Capital Market Director, Securities and Exchange Board of India (SEBI) has decided to invest and adjudicate investment feeds on units providing both advisory and distribution services. Recommended to keep customers separate.

Sebi has proposed to keep the fee limit of Asset Under Advice (AUA) at 5% or annual uniform Rs. In addition, the governing body has suggested not only business isolation for the units operating as both advisors and distributors but also separation of clients. This proposal is part of a consultation paper on SEBI Registered Financial Advisors (RIAs) issued by the January regulatory body. As noted in this paper, a number of complaints are being received from consumers that investment advisors are offering guaranteed returns and are charging extraordinary fees as well as mis-selling products.

Sebi has proposed keeping both customers separate in their proposal regarding the separation of suggested distribution and advisory businesses. Under the current rules, individual advisors cannot offer both distribution and advisory services, but corporate units can offer both services through different departments. Sebi's advice letter will be applied to both individual advisors and corporate units by adopting a new approach. Accordingly, both distribution and advisory services cannot be offered to a single customer. In order to prevent the avoidance of rules by group units, the whole corporate group shall be treated as a single unit for this purpose, as per the Companies Act.

Existing customers who pay both distribution commissions and advisory fees will have the right to choose from both service models. As a rule of separation of subscribers, the providers will be required to inform the customers to redeem the funds and hence the tax and exit load.

According to the current rules for Investment Advisors, Investment Advisors cannot provide distribution services, Sebi has suggested approving this, but can do so without taking charge from the customers. This will prohibit direct or indirect payments like commissions. He will have to sign an Investment Advisory Agreement with the obligated clients and will apply certain norms and conditions laid down by SEBI.

Sebi has suggested a limit of 8.4% for AUA for investment fees collected by Investment Advisors. This will include all securities and investment products or advisors providing advice and / or implementing services.

If the customer wants to adopt fixed fee model then the annual fee limit per family-family will be Rs. The 5.7% limit is generous and more than the maximum 7.5% charged by mutual funds. On the other hand, there is a small fee of Rs.