Sebi looks into research analysts' concerns; may ease advance fee norms

The Securities and Exchange Board of India (Sebi) is considering easing regulations in the collection of advance fees from clients, in response to concerns raised by research analysts. Under the rules implemented in December 2024, research analysts were permitted to charge advance fees for only one quarter.

 

However, in a consultation paper issued on Wednesday, Sebi proposed extending this period to one year. The December 2024 regulations had drawn criticism from research analysts (RAs), who argued that the shorter fee-collection window would discourage them from providing long-term recommendations and disrupt existing fee structures. They also highlighted that frequent fee collections would create logistical challenges and additional costs for both clients and RAs.

 

Industry stakeholders had warned that the three-month fee collection mandate could force them to discontinue operations. They argued that clients might not stay beyond three months unless they saw immediate value in the recommendations, potentially pushing RAs and investment advisors (IAs) to prioritise short-term advice over long-term strategies to retain clients.

 

“Considering the representations from IAs and RAs, and given that other fee-related provisions — such as the fee cap and refund policies — address most fee-related complaints, it is proposed to revise the advance fee period to no more than one year,” Sebi said. The regulator also clarified that in cases of premature termination by clients, RAs would be required to refund fees for the unexpired period, without charging any brokerage fee. However, IAs may retain a breakage fee of up to one quarter to cover client onboarding costs.

 

The proposed norms will not apply to non-individual clients, accredited investors, or institutional investors seeking proxy advisory services. For these entities, fee structures will continue to be governed by bilaterally negotiated contracts. Sebi has invited public comments on the proposal until February 27.