SEBI allows Investment Advisers to charge fees for second opinions on distributed assets

SEBI allows Investment Advisers to charge fees for second opinions on distributed Assets

Market regulator Securities and Exchange Board of India (SEBI) has allowed registered Investment Advisers (IAs) to charge fees for providing a second opinion on assets that are already under a pre-existing distribution arrangement with another entity.

Previously, such assets were excluded from an adviser’s Assets Under Advice (AUA) for fee calculation, effectively preventing IAs from charging AUA-based fees on them. The industry had represented to SEBI that this restriction limited their ability to serve clients seeking an independent second opinion on existing portfolios.

SEBI said it had received representation from industry on the issue. The circular stated, “Industry association of IAs has represented that, if a client desires to avail a second opinion on assets, which are under any pre-existing distribution arrangement with any entity, the above provision restricts their ability to serve such clients and hence have sought that IAs should be permitted to charge AUA based fee in such scenarios and provide second opinion to their clients”. Responding to the industry representations, SEBI has now permitted IAs to levy an advisory fee of up to 2.5 percent per annum of the asset value for providing such second-opinion services.

However, advisers must disclose and obtain annual consent from clients, clearly stating that in addition to the advisory fee, clients will also bear costs related to distributor commissions on those assets. The circular read,” In such cases, IAs must disclose and seek consent from such clients (on annual basis), that apart from the advisory fees payable to the IA, the clients will be incurring costs towards distributor consideration for such assets”.

The circular said the new provisions come into effect immediately. The move is intended to give investors the flexibility to seek independent advice on their existing investments while maintaining transparency around costs.

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