Securities and Exchange Board of India (“SEBI”) has, in a Circular dated 23rd September, 2020, issued additional guidelines to be complied by Investment Advisers.
Key highlights:
1. The Circular lays down the compliance and monitoring process to be adopted by Investment Advisers (“IA”) to ensure client level segregation at Investment Adviser’s group/family level as per the Amendment Regulations. The IAs are required to comply with this process by 1st April, 2021
2. The Circular lays down the terms and conditions to be covered in the investment advisory agreement between the IA and its clients
The Circular clarifies that the IA can include additional terms and conditions in the agreement without diluting the provisions of the Amendment Regulations. The IAs are required to comply with these terms and conditions by 1st April, 2021.
3. The Circular has prescribed the following modes in which the IA can charge fees from clients
A. Assets under Advice(AUA) mode –
a. The maximum fees that may be charged under this mode must not exceed 2.5% of AUA per annum per client across all services offered by IA.
b. IA will be required to demonstrate AUA with supporting documents like demat statements, unit statements etc. of the client.
c. Any portion of AUA held by the client under any pre-existing distribution arrangement with any entity shall be deducted from AUA for the purpose of charging fee by the IA.
B. Fixed fee mode – The maximum fees that maybe charged under this mode shall not exceed Rs. 1,25,000 per annum per client across all services offered by IA.
The above modes have to be implemented by 1st April, 2021.
4. The Circular lays down the process for applying for registration of non-individual IAs as per the Amendment Regulations.
5. The Circular informs that once the number of clients reaches 150, till the grant of registration as a non-individual IA, the individual IA cannot onboard fresh clients. However, during the period of examination of application by SEBI, the individual IA can continue to service existing clients. In case the IA does not get registration as non-individual IA, such IA will continue the advisory activities as an Individual IA while ensuring that the numbers of clients does not exceed 150 in total.
6. The Circular informs that IAs having more than 150 clients on 30th September, 2020 are required to report their number of clients to SEBI through sebiria@sebi.gov.in latest by 15th October, 2020 in the following format
7. IAs are required to maintain records of interactions, with all clients including prospective clients (prior to onboarding), where any conversation related to advice has taken place, in the form of:
i. Physical record written & signed by client,
ii. Telephone recording,
iii. E-mail from registered email id,
iv. Record of SMS messages,
v. Any other legally verifiable record.
8. IAs must display the following information prominently on their website, mobile app, printed or electronic materials, know your client forms, client agreements and other correspondences with the clients:
• Complete name of Investment Adviser as registered with SEBI
• Type of Registration – Individual, Non-Individual
• Registration number, validity of registration,
• Complete address with telephone numbers
• Contact details of the Principal Officer – contact no, email id etc.,
• Corresponding SEBI regional/local office address.
Source: Securities and Exchange Board of India
