SEBI seeks Board approval to modify advance fee regulations for Investment Advisers (IAs) and Research Analysts (RAs). The proposal aims to increase the maximum advance fee period to one year, from the current two quarters for IAs and one quarter for RAs. This change responds to industry representations citing disruptions to long-term recommendations and existing fee practices. Additionally, SEBI proposes applying all fee restriction provisions, including fee limits, payment modes, refunds, and breakage fees, exclusively to individual and Hindu Undivided Family (HUF) clients, excluding accredited investors. For non-individual clients, accredited investors, and institutional proxy advisor clients, fees would be determined through contractual negotiations. A public consultation, yielding overwhelmingly positive feedback, supported these changes, highlighting the benefits for long-term investment behavior. SEBI believes these modifications will balance investor protection with industry needs, and proposes implementing them via circular.
Source: SEBI Press Release No.15/2025 Dated: 24/03/2025
Securities and Exchange Board of India
Advance Fee to be charged by Investment Advisers and Research Analysts
1. Objective
1.1. This memorandum seeks approval of the Board to increase the limit of maximum advance fee that may be charged by Investment Advisers (IAs) and Research analysts (RAs) to their clients and to make all the fee restriction provisions applicable only in case of their individual and Hindu Undivided Family (HUF) clients.
2. Background
2.1. In terms of the existing regulatory provisions for IAs, if agreed by the client, IA may charge fees in advance for not more than two quarters. The provision was made effective from April 01, 2021 pursuant to amendments to the SEBI (Investment Advisers) Regulations, 2013 (‘IA Regulations’) that came into force in September 2020.
2.2. Pursuant to amendment to SEBI (Research Analysts) Regulations, 2014 (‘RA Regulations’) in December 2024, it is provided that RAs may charge fees in advance for not more than one quarter. For existing clients, RAs are required to ensure compliance with the aforesaid provision latest by June 30, 2025. For new clients, the requirements have become effective from January 08, 2025.
2.3. SEBI has received representations from Association of Registered Research Analysts of India (ARRAI) and few other RAs to consider relaxation in advance fee provision. It has been represented that the provision on advance fee would inter alia disincentivize RAs from offering long term recommendations and shall disrupt the existing practices related to charging of fee and that even the mandate facility to charge fee periodically shall cause inconvenience and shall entail cost to both client and RA.
2.4. The objective of the provision of the advance fee is to protect the interests of the investors, so that investors do not get stuck with an IA/RA just because they have paid the money in advance to the IA/RA.
2.5. RAs have represented that they may be allowed to charge advance fee for one-year period. The overall annual fee limit on RA fees provides the necessary protection to investors and sufficient recourse is provided to investors to redress their grievances through the provision on refund of fees in case of deficiency in services of RAs. This shall also incentivise RAs to provide long-term recommendations.
2.6. Similar representation has also been received from Association of Registered Investment Advisers (ARIA) to reconsider the advance fee related provision applicable to IAs.
2.7. Representations have also been received to remove fee restriction provisions.
3. Public consultation:
3.1. In view of the representations from IAs and RAs, SEBI issued a consultation paper on February 12, 2025 (Annexure A) proposing to allow IAs and RAs to charge advance fee for a period of one year. As noted in the consultation paper, to protect the investor interest, IA Regulations and RA Regulations also have the provisions for refund of fees and breakage fees in the event of pre-mature termination of IA and RA services. Further, it has been noted that the advance fee can be charged by IAs and RAs only if agreed by the client.
3.2. It was also noted that the provisions related to limit on fee chargeable by IAs and RAs are applicable only to individual and HUF clients (other than accredited investors) and are not applicable in case of non-individual clients and accredited investors. However, the same was not specified for other fee related provisions such as modes of payment of fees, refund of fees, advance fee, breakage fees. It was discussed that the primary objective of the fee related provision were to protect the interest of the individual and HUF clients. Accordingly, it was also proposed in the consultation paper that the compliance by IAs and RAs to the fee related provisions such as fee limit, modes of payment of fees, refund of fees, advance fee, breakage fees shall only be applicable in case of their individual and HUF clients (other than accredited investors). In case of non-individual clients, accredited investors, and in case of institutional investors seeking recommendation of proxy adviser, fee related terms and conditions shall be governed through bilaterally negotiated contractual terms.
4. Analysis of public comments:
4.1. SEBI received responses from 297 entities/persons which include various stakeholders such as IAs, RAs, industry associations and investors. 283 responses are in favour of the proposals in the consultation paper. 14 responses are in disagreement with the proposal.
4.2. The comments in favour of the proposal inter alia mentioned that the proposals shall help in promoting the long-term investing behaviour. It is noted that the proposal to increase the period for advance fee to one year is favored for the following reasons mentioned in the comments-
i. The restriction to limit the fee collection period to 3 months pose significant risks in the ecosystem by way of harming the long-term investing behavior of investors and hurting the business interests of the RAs.
ii. Provision on 3 months’ advance fee force RAs to move to a short-term recommendation business model vs a long-term recommendation business models that already exists.
iii. Provision on 3 months’ advance fee compels RAs to make unnecessary churn in their recommendations to keep their clients engaged
iv. With 3 months’ advance fee provisions may make RAs to creatively price the products to bypass the stated regulation, defeating the objective with which regulation was designed in the first place.
v. The decision-making cycles for service renewal will be based on a period of time that is too short in case the advance is restricted to 3 months to meaningfully understand the value from the product/service.
vi. Provision on 3 months’ advance fee promotes short-term investing behaviour which is misaligned with SEBI’s efforts to build a healthy long-term investing behaviour.
vii. In case the advance is restricted to three months, many RAs may go out of business due to poor user retention.
4.3. The comments which are in disagreement of the proposal and SEBI response to these comments are given below:
| Sr. No. | Comments | SEBI response |
| 1 | RAs should be allowed to charge fee for 3 years in advance if the investor agrees as RAs are expected to help investors create long term wealth. Restricting the fee or the advance period restricts an RA to achieve scale. | Though the advance fee is restricted to one-year period, there are no restrictions on IAs and RAs to make long term agreements of more than one year. The proposal to increase the advance fee period to one year is also widely agreed by IAs/RAs and their association. Increase the limit beyond one year shall not be in alignment of objective of the protection of investor interest. Further, it may be noted that the fee restriction on advance is only for individual and HUF clients who are not accredited. For non-individual and accredited investors, there is no restriction. Hence the suggestion is not accepted. |
| 2 | The fees decided should be bilaterally decided between client and advisor whether it is accredited investor or any other category of investor. | All the fee related provisions are applicable only in case of individual and HUF clients (other than accredited investors) of IAs/RAs. These clients may not have resources and industry-wide information to determine the fee related terms. Protection of their interest is primary objective of the regulations. Hence the suggestion is not accepted. |
| 3 | RAs are professionals whose fees cannot be regulated as we provide professional services like doctors. Kindly remove max. fees charged by RAs. | |
| 4 | Only 1 quarter fees should be charged in advance. Sometimes RAs launch new products/services and don’t provide service to their previous subscribers who paid 1 year fee in advance. |
The proposal to increase the period for advance fee to one year has been in accordance with the industry concerns mentioned in the consultation paper. The IA regulations and RA Regulations also contain other fee related provisions such as refund of fees, breakage fees in order to protect the interest of the investors. |
5. Proposals for consideration and approval of the Board:
5.1. In view of the industry representations and public comments and considering that other fee related provisions viz. fee cap, refund of fees and breakage fees shall broadly address fee related concerns/complaints, the following is proposed for consideration and approval of the Board.
i. If agreed by the client, IAs and RAs may charge fees in advance, however, such advance shall not exceed fees for a period of one year.
ii. The fee related provisions such as fee limit, modes of payment of fees, refund of fees, advance fee, breakage fees shall only be applicable in case of their individual and HUF clients (not being accredited investors). In case of non-individual clients, accredited investors, and in case of institutional investors seeking recommendation of proxy adviser, fee related terms and conditions shall be governed through bilaterally negotiated contractual terms.
5.2. It is proposed to implement the aforesaid provisions through the issuance of the circular(s) and are proposed to be effective from the date of issuance of the circular.
6. Proposal
6.1. The Board is requested to consider and approve the proposals at paragraphs 5.1 and 5.2 mentioned above in the Memorandum and authorize the Chairperson to take necessary steps for implementation of the decisions of the Board.
Annexure A
(Consultation paper is available on SEBI website www.sebi.gov.in at Reports & Statistics » Reports » Reports for Public Comments)
