Securities and Exchange Board of India (SEBI) has clarified that registered investment advisors known as IAs, can offer execution services without charging any commission or fees for their advisory clients.
Further emphasising it, SEBI stated that an investment adviser, or group or family of investment adviser cannot avail reimbursement of any amount or implementation fee or referral fees (whether embedded or indirect) 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 given by SEBI are a part of informal guidance sought by Paytm Money Ltd (PML) regarding SEBI’s investment advisors (IA) norms.
PML disclosed that it currently does not charge advisory or execution fees but expressed its intention to secure reimbursement of the service-related out-of-pocket expenses such as know-your-customer (KYC), technology hosting and platform maintenance from AMCs.
In an attempt to justify the above PML stated that it is bearing the cost that the AMC would have borne in case the investments were directly routed through them. PML then sought SEBI’s clarification on whether availing such reimbursement from AMCs is in violation of the IA norms.
SEBI in its response that has been made public reiterated that an investment adviser may provide implementation services to clients in the securities market but 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. Such implementation services need to be provided only through direct schemes or products in the securities market.
According to SEBI guidelines, an investment adviser should not render any investment advice or charge any fee until consent is received from its clients on the terms and conditions.
SEBI stressed its opinion by saying that the clients are not under any obligation to avail implementation services offered by the investment advisor and that 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.
According to 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.
To ensure enforceability, an agreement between IA and the client, incorporating the terms and conditions in the document as specified by SEBI, has to be in place before the IA can offer any services to clients or charge any fees, the regulator says.
SEBI says about principal officer being 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.
It added further that this position is based on the information furnished by PML in the request for clarification, asserted that different facts or conditions might lead to a different interpretation and the letter does not express a decision of the board on the question referred.
Smrutirekha Bhoi