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In a recent circular, SEBI has released the most important terms and conditions for investment advisors (IAs). IAs are required to communicate these to their clients by June 30, 2025. The terms and conditions are as follows:
- IAs can only accept payment towards their fees for investment advisory services and cannot accept funds or securities in their account on behalf of the clients
- IAs cannot guarantee returns, accuracy or risk-free investments. All advise should be subject to market risks with no assurance of any returns or profits
- IAs cannot offer schemes with assured/guaranteed/fixed returns
- IAs can only give advice on products regulated by SEBI. For advice on other products, IAs will have to give a disclosure to the client that such products do not come under the purview of SEBI and the regulator will not solve any grievances for the particular product
- IAs cannot carry out any trade transaction (purchase/sell) on behalf of the client without their specific consent. The clients are also advised to not permit IAs to execute any transaction on their behalf without specific consent
- The fees charged by the IA will be as per the limit specified by SEBI/Investment Adviser Administration and Supervisory Body (IAASB). The limit under fixed fee mode is Rs. 1.51 lakh per annum per family of client or 2.5% of Asset Under Advisory (AUA) per annum per family of client. This fee limit is applicable only to individual investors and HUFs and is applicable only to products regulated by SEBI
- IAs can charge fees in advance if agreed by the client up to a maximum of two quarters. In case of pre-mature termination of the IA services by the client or the IA, the clients can ask for refund for the fees for unexpired period. The IA can also retain a maximum breakage fee up to fees for one quarter
- IAs cannot accept payments in cash. The acceptable modes of payment include cheque, UPI, online bank transfer and Centralized Fee Collection Mechanism (CeFCoM)
- IAs are expected to know the client’s financial details to provide services while the clients are required to share their financial details like income, existing liabilities, investments etc. with the IA
- The services provided by IAs will have to be based on the client’s risk profile which should also be communicated to them. IAs are required to do risk profiling and suitability analysis before providing services
- IAs cannot provide distribution services to clients or any of their group entity/family members to avoid any conflict of interest
- IAs will have to advise non-commission based direct plans only, wherever applicable. IAs will promptly inform the client about any conflict of interest
- In case of any grievances, the clients will first contact the IA and if unsatisfied, can lodge complaint on SEBI’s SCORES platform
- In case the clients are dissatisfied with outcome from SCORES, they can consult the Online Dispute Resolution (ODR) through the Smart ODR portal
- The SEBI registration, enlistment with the IAASB and NISM certifications are no guarantees for the performance of the IAs or any assurance of returns
- IAs can never ask their clients about their login credentials and OTPs for their trading accounts, demat accounts and bank accounts. The clients are advised to not share such information with anyone including the IA
