India’s Securities and Exchange Commission proposed on Wednesday that investment advisors and research analysts can request advances from clients for a period not exceeding a year.
As Sebi’s suggestion, one-year advance fees can be taken from individual clients and unsubsegmented Hindu families. However, fees will be resolved through conditions determined by the terms and conditions of the institutional clients, certified advisors and individuals operating through proxy advisors.
Additionally, prepaid fees can only be obtained from individuals and HUF clients if you agree.
For investor protection, Sebi suggests that if a client terminates IA’s services early, they can request a refund for the unused period. However, IAs are eligible to charge a corruption fee in this situation, which is equivalent to a quarterly fee. On the other hand, in such circumstances, RAS cannot charge a damage fee.
These proposals will remain open for public comment until February 27, 2025.
Currently, IAS can charge up to six months of advance fees, while RAS can charge for three months. These rules were implemented in IAS in April 2021 and in December 2024, RAS under the SEBI (Investment Advisory) Rules, 2013 and SEBI (Research Analyst) Rules, 2014.
Sebi received a request from RAS to ease the prepaid fee. They argue that limiting upfront fees in three months will hinder long-term recommendations and increase costs for both clients and analysts. The IAS also asked market regulators to reconsider the rules.
SEBI Limited’s advance costs were the main reason to protect investors. If there are too many investors in advance, you may feel like you are still in your IA or RA, even if you are unhappy with the service.
However, RAS claims that the short fee period forces them to focus on short-term recommendations to keep their clients alive rather than offering a long-term strategy. This may not be the best interest for investors.
