Description

SEBI allows Investment Advisers to charge up to 2.5% annual fee for providing second opinions on client assets under pre-existing distribution arrangements, with mandatory disclosure of dual costs.

Summary

SEBI has introduced ease of doing business measures allowing registered Investment Advisers (IAs) to charge fees for providing second opinions on client assets that are under pre-existing distribution arrangements with other entities. Previously, IAs were prohibited from charging Assets Under Advice (AUA) based fees on such assets. The new provision permits IAs to charge up to 2.5% per annum of such assets’ value, subject to mandatory annual disclosure and consent requirements.

Key Points

  • Investment Advisers can now charge fees for second opinions on assets under pre-existing distribution arrangements
  • Fee capped at maximum 2.5% of asset value per annum
  • IAs must obtain annual consent from clients disclosing dual cost structure (advisory fees plus distributor consideration)
  • Revision to Clause 1.(iii)(f) of the Master Circular for Investment Advisers
  • Change addresses industry representation about restrictions on serving clients seeking second opinions
  • Effective immediately from October 30, 2025

Regulatory Changes

Clause 1.(iii)(f) of the Master Circular for Investment Advisers has been revised to read:

“For clients seeking second opinion on assets under pre-existing distribution arrangement with other entity, IAs may charge fee on the assets under pre-existing distribution arrangement under AUA mode, subject to a limit of 2.5% of such assets value per annum. IAs shall, on annual basis, disclose and seek consent from such clients that apart from the advisory fees payable to the IA, the clients will be incurring costs towards distributor consideration for such assets.”

Previously, any portion of AUA held by clients under pre-existing distribution arrangements was required to be deducted from AUA for fee charging purposes.

Compliance Requirements

For Investment Advisers:

  • May charge fees on assets under pre-existing distribution arrangements up to 2.5% per annum
  • Must provide annual disclosure to clients about dual cost structure (advisory fees plus distributor consideration)
  • Must obtain annual consent from clients acknowledging the dual cost structure
  • Must ensure clients understand they will incur both advisory fees to the IA and distributor consideration for such assets

For Clients:

  • Will receive annual disclosure regarding fee structure for second opinion services
  • Must provide consent acknowledging awareness of dual costs (advisory fees and distributor consideration)

Important Dates

  • Effective Date: October 30, 2025 (immediate effect)
  • Consent Requirement: Annual basis for affected clients
  • Disclosure Frequency: Annual basis

Impact Assessment

For Investment Advisers:

  • Expands service offerings to include second opinion services on distributed assets
  • Creates new revenue opportunity from previously restricted asset base
  • Addresses industry concerns about service restrictions
  • Requires implementation of annual disclosure and consent processes

For Investors:

  • Provides opportunity to obtain professional second opinions on existing investments
  • Increases transparency through mandatory dual-cost disclosure
  • Protects investor interests through annual consent requirements
  • May incur additional costs (capped at 2.5% annually) for second opinion services

Market Impact:

  • Promotes ease of doing business for Investment Advisers
  • Enhances investor protection through disclosure requirements
  • Encourages competition and quality of advisory services
  • Balances commercial viability for IAs with investor safeguards

Regulatory Authority: Circular issued under Section 11(1) of Chapter IV of SEBI Act, 1992 read with Regulation 15A of SEBI (Investment Advisers) Regulations, 2013.

Impact Justification

Regulatory change affects Investment Advisers' business operations and fee charging ability, expanding service scope for second opinions while protecting investor interests through disclosure requirements