Authored by: Anish V
SEBI through its circular dated 30 October 2025 (HO/38/12/11(1)2025-MIRSD-POD/I/71/2025) (“Circular”), has introduced a facilitative measure aimed at improving ease of doing business for registered Investment Advisers (“IAs”). In our article titled “SEBI ISSUES CONSULTATION PAPER FOR IMPROVING EASE OF DOING BUSINESS FOR IAs AND RAs” in the August 2025 Edition of ‘All Things Listed’, we had briefly set out the proposals under SEBI’s consultation paper dated August 7, 2025 (“Consultation Paper”). The present Circular is towards implementation of the amendments proposed in the Consultation Paper.
The Circular permits IAs to charge fees to clients for second opinion on assets which are held under pre-existing distribution arrangements with other entities. This marks a significant change and relaxation from the earlier regime under the Master Circular for Investment Advisers dated June 27, 2025 (“Master Circular”), which imposed restrictions on fee-charging for such second opinions on assets held under pre-existing distribution arrangements.
Background
Clause 1(iii)(f) of the Master Circular required that any portion of the Assets Under Advice (“AUA”) held by a client under a pre-existing distribution arrangement must be deducted from the total AUA for the purpose of calculating fees payable to the IA. As a result, IAs were prohibited from charging AUA-based fees on such assets, limiting their ability to offer advisory services where a client sought an independent or secondary review of their existing portfolio.
Industry associations representing IAs highlighted that this restriction adversely impacted both advisers and investors, particularly clients who wished to obtain an unbiased second opinion on assets for which distributor consideration was already being paid.
Regulatory Changes Introduced by SEBI
Taking cognisance of these industry submissions, and consequent to the Consultation Paper, SEBI has decided as follows:
1. Permission to Charge AUA-Based Fee for Second Opinion
IAs are now permitted to charge AUA-based fees on assets held under pre-existing distribution arrangements, subject to an annual cap of 2.5% of the value of such assets. This relaxation enables IAs to extend advisory services even where they are not the distributors of those assets, ensuring greater flexibility for investors.
2. Mandatory Disclosures and Annual Consent
Where an IA provides a second opinion on such assets, the IA is required to disclose to the client that the advisory fee payable is in addition to the fees/ payables under the pre-existing distribution agreement and seek annual consent from the client acknowledging the above. This ensures transparency and informed decision-making by clients who may otherwise be unaware of the implication of double cost.
3. Revision to Master Circular
Clause 1(iii)(f) of the Master Circular has been substituted to reflect the revised position. The amended clause now expressly permits charging of AuA-based fees for second opinion, subject to the 2.5% annual cap and the mandatory disclosure and consent requirements.
