SEBI allows IAs, RAs to charge advance fees for up to 1 year

The Securities and Exchange Board of India (SEBI) has allowed investment advisors (IAs) and research analysts (RAs) to collect fees in advance for up to one year, effective Wednesday.

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.

The relaxation comes after SEBI received representations from RAs raising concerns of the restrictions disincentivising them from offering long-term recommendations. The rule had also led to some RAs shutting shop due to the increased costs and compliances.

“This is a significant and positive step that acknowledges the industry’s need for flexibility in offering long-term research and advisory services. SEBI’s move ensures that analysts can focus on delivering high-quality, long-term investment insights without the constraints of short-term fee collection cycles,” said Pranit Arora, Co-founder and Chief Executive Officer at Univest Group.

Curbs on advance fees

SEBI had introduced the limits on advance fees to protect investors from locking in long-term payments for services they may not find satisfactory. The SEBI board, at its latest meeting, approved the extension of the time period following public comments received through consultation.

SEBI also clarified that fee related provisions such as fee limit, modes of payment of fees, refund of fees, advance fee, breakage fees shall only be applicable in case of their individual and Hindu Undivided Family (HUF) clients, and not accredited investors.

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 circular said.