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Sebi provides clarity on investment adviser regulations


Sebi provides clarity on investment adviser regulations
Securities and Exchange Board of India

New Delhi: Registered investment adviser scan charge “fair and reasonable” fee for their services but current regulations do not envisage variable payments on the basis of a particular client’s profits or losses, according to Sebi.

“An investment adviser advising a client may charge fees, subject to any ceiling as may be specified by the Board, if any. The investment adviser shall ensure that fee charged to the clients is fair and reasonable,” the regulator said.

The Securities and Exchange Board of India (Sebi) has given this view on an application filed by Market Magnify Investment Adviser seeking informal guidance in the matter.

On a query whether it is compulsory to enter into an agreement in writing or mentioning the terms in email would be sufficient in case of variable fees charged on post profit model, the watchdog said the investment adviser should disclose all the material information including terms and conditions on which it offers advisory services.

Entering into an agreement with the client is not necessary, Sebi said, adding that however, investment advisers are required to maintain copies of agreements with the clients, if any.

Market Magnify Investment Adviser had sought an interpretative letter asking whether it can charge variable fees and whether an adviser would be responsible to make good losses incurred by the client in case of fixed fee, assuming that such losses are not caused due to negligence of the adviser but due to inherent market risk.

Responding to the query, the regulator said, “Linking of advisory fees being charged to the profit/loss generated by assuming that the clients have acted upon the advice, is not envisaged by the existing framework of Investment Advisory regulations”.

“Different facts or conditions might require to a different result. Further, this letter does not express a decision of the board on the questions referred,” it noted. The watchdog also said its views are expressed with respect to clarification sought in terms of Sebi Investment Advisers regulations and are not applicable to any other Sebi regulations.

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