SEBI caps fees for investment advisers

Board okays separation of advisory, distribution to minimise conflict of interest

The Securities and Exchange Board of India (SEBI) has amended the regulatory framework for investment advisers to introduce a cap on the maximum fee such entities can charge to investors while segregating the advisory and distribution activities to minimise conflict of interest issues.

2.5% of assets

The board of the capital markets watchdog, which met in Mumbai, approved the amendment in the SEBI (Investment Advisers) Regulations 2013, which also stipulated that a person dealing in distribution of securities cannot use the nomenclature ‘Independent Financial Adviser ‘ or ‘Wealth Adviser’ without registering as an Investment Adviser with the regulator.

While the regulator did not specify the upper limit of fees, a consultation paper floated by SEBI in January had proposed capping the fees at 2.5% of the assets under advice or a fixed fee of ₹75,000 per year per family.

Further, an Individual Investment Adviser will not be able to provide distribution services, stated a release by the regulator. On a different note, the regulator also said that Karvy Stock Broking, which is under the regulatory scanner for pledging client securities to raise funds for itself, will make good the payout shortfall by March.

Karvy Group is in the process of selling stake in a group company and the term sheet has already been signed, said SEBI chairman Ajay Tyagi while addressing the media after the board meeting.

The shortfall in payout, after factoring in the available securities and funds of the group, is estimated at about ₹680 crore.

As per the SEBI chairman, Karvy Stock Broking’s outstanding payment obligations are pegged at ₹1,189 crore while the group has available funds amounting to ₹511 crore.

Among other things, the regulator has made it mandatory for sponsors of mutual funds to invest in close ended schemes. Currently, such a requirement is mandatory for all kinds of schemes except close-ended ones.

Circular soon

Mr. Tyagi added that the regulator was examining the issue of categorisation of funds and would soon come out with a circular.

This is on the back of representation from the industry that fund houses were finding it difficult to invest, especially in the small-cap universe.

The regulator has also amended the SEBI (Depositories and Participants) Regulations to include a clause that would state that pledge would include re-pledge of securities for margin and/or settlement obligations of the client.

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