No Fees for Service-Related Expenses from Advisory Clients, Rules Sebi

Investment advisors can offer execution services for their advisory clients but without charging any commission or fees, markets regulator, the Securities and Exchange Board of India (Sebi) said. 

It further said an investment advisor cannot avail reimbursement of any amount for the services given to its clients from the asset management companies (AMCs) whose direct plans are being sold by it to clients. 

The clarifications have been given as part of informal guidance sought by Paytm Money Ltd (PML) regarding Sebi's investment advisors (IA) norm. 

PML says it does not charge advisory or execution fees and intends to secure reimbursement of the service-related out-of-pocket expenses such as KYC, technology hosting and platform maintenance from AMCs. This is because PML is bearing the cost that the AMC would have borne in case the investments were directly routed through them. 

It has asked Sebi to clarify whether availing such reimbursement from AMCs is in violation of the investment advisors’ norm. In its reply made public on Monday, Sebi said that an investment advisor may provide implementation services to the clients in the securities market. 

This is subject to the condition that "investment advisors shall ensure that no consideration including any commission or referral fees, whether embedded or indirect or otherwise, by whatever name called is received, directly or indirectly, at investment advisor's group or family level for the said service, as the case may be". It further said such implementation services need to be provided only through direct schemes or products in the securities market. 

Also, the client need not to be under any obligation to avail implementation services offered by the investment advisor. The Sebi rules restrict a registered IA or its group of family to charge any implementation fees from its clients, the regulator said. 

In view of this, Sebi said "PML cannot avail reimbursement of any amount for the services given to its clients from the AMCs whose direct plans are being sold by them to clients". 

As per the regulator, an investment advisor should not render any investment advice until consent is received from its clients on the terms and conditions.  

Further, in order to ensure enforceability, an agreement was mandated between IA and the client incorporating the terms and conditions in the document as specified by Sebi. 

 "...merely seeking an electronic consent and sharing the same with the clients on their registered email address may not be considered as sufficient compliance with IA regulations," the regulator noted. 

With regard to Principal Officer, Sebi said a member of the committee (including a department head in charge of advisory business) appointed by the board of IA to oversee the advisory functions and operations cannot be the Principal Officer of the IA unless he is also the managing director or executive chairman of the board or equivalent management body of the IA. 

Noting this position is based on the information furnished, Sebi said "different facts or conditions might lead to a different interpretation". 

"This letter does not express a decision of the board on the question referred," the regulator added.