The Securities and Exchange Board of India (SEBI) has issued a consultation paper proposing changes that would allow investment advisers (IAs) and research analysts (RAs) to charge advance fees for up to one year. The proposal comes as part of SEBI’s efforts to ease regulatory compliance while continuing to protect investor interests.

Currently, investment advisers are allowed to charge advance fees for up to two quarters if mutually agreed with the client, while research analysts can charge only for one quarter. SEBI initially introduced limits on advance fees to prevent investors from being locked into long-term contracts with services they might find unsatisfactory.

However, industry stakeholders, particularly research analysts, have raised concerns that these restrictions discourage long-term recommendations and create unnecessary inconvenience, leading to increased costs for both clients and analysts.

SEBI invites public comments by Feb 27

To address these concerns, SEBI has invited public comments on the proposed changes, which must be submitted by February 27. The consultation paper explains that the goal of advance fee limits was to protect investors from being stuck with advisers or analysts due to pre-paid fees. If a contract is terminated early, both research analysts and investment advisers are required to refund proportional fees, with a maximum breakage fee of one quarter’s charge.

The new proposal suggests that individual and Hindu Undivided Family (HUF) clients will be subject to compliance requirements related to fee limits, payment methods, refunds, and breakage fees. However, institutional and accredited investors, as well as non-individual clients, will have fee-related terms governed by bilaterally negotiated contracts.

This proposed change aligns with SEBI’s objective to streamline compliance for market participants while ensuring investor protection.