Sebi allows advisers, analysts to charge advance fees for up to a year

Capital markets regulator Sebi on Wednesday allowed 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.

"If agreed by the client, IAs and RAs may charge fees in advance, however, such advance shall not exceed fees for a period of one year," the Securities and Exchange Board of India (Sebi) said in its circular.

The fee-related provisions such as fee limit, modes of payment of fees, refund of fees, advance fee, and breakage fees will only be applicable in the case of their individual and Hindu Undivided Family (HUF) clients (provided these clients are not accredited investors).

These provisions will not be applicable in the case of non-individual clients, accredited investors, and in case of institutional investors seeking the recommendation of a proxy adviser.

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

The new guidelines will come into effect from the date of issuance of this circular.

The new rules came after concerns remained about some of the fee-related provisions, which restricted the collection of advanced fees by IAs/ RAs to six months or three months fee.

After the changes in Research Analysts norms in December 2024, Sebi received representations regarding the restriction on an advance fee for three months only, which was allowed to be charged by research analysts. It had been represented that the three-month provision disincentivised RAs from offering long-term recommendations.

Similar representations were received by Sebi from investment advisers regarding the restriction on advance fees for two quarters only, which was allowed to be charged by IAs.

The regulator considered this feedback and floated a consultation paper to increase the period of advance fee for one year by IAs and RAs.

Accordingly, Sebi has relaxed this particular provision.