Sebi's Advice To Investors On Paying Research Analysts And Investment Advisers

Sebi Circulars: Capital market regulator, the Securities Exchange Board of India (Sebi) introduced a payment mechanism called Centralised Fee Collection Mechanism (CefCom) earlier in 2024. According to a release by the market regulator dated on June 12, the new payment mechanism seeks to provide investors with a ‘secure and closed’ ecosystem for paying fees to Registered Investment Advisers(RIAs) and Research Analysts (RAs). Notably, the payment mechanism has been perational since October 1, 2024.

“CeFCoM is a secure and transparent payment ecosystem developed with the objective of securing that investors pay fees only to registered investment advisors and research analysts. It is an optional mechanism,” Sebi said in the release.

Investors generally pay RIAs and RAs for the services they provide. The money earned by RIAs and RAs is paid in the form of a fee. Typically, RIAs are paid fees based on the percentage of assets under management (AUM) they have or on a fixed fee model. RAs are generally paid fees for providing research reports and investment advice through subscriptions or lumpsum purchases.

The capital market regulator urged investors to pay fees to their respective RIAs and RAs through the CeFCoM. The market regulator mentioned in the release that the mechanism is ‘secure and transparent’. However, the regulator also clarified that using the mechanism is optional.

Notably, when investors useCeFCoM to pay fees, they can only pay those RAs and IAs who are registered with the Sebi. Thus the platform provides a clear distinction between registered IAs and RAs and unregistered entities which might be unlawfully providing their services by mimicking the identity of registered entities.

BSE Ltd and MF Utilities India Pvt Ltd jointly operate the CeFCoM mechanism. Investors who use the payment platform can send money through both online and offline methods.

“Investors can make payment of fees through multiple payment modes such as Net Banking, Debit Card, UPI/UPI Autopay, IMPS/NEFT/RTGS, eNACH and eventhrough Cheque and Credit Cards,” Sebi said in the release.

The market watchdog mentioned in the release that as of June 10 over Rs. 5 Crore has been paid as fees to RAs and RIAs via the CeFCoM. The market regulator has been making consistent effort to safeguard payments and protect investors from cyber fraud.

Earlier on June 11, the market regulator mandated all registered brokers, mutual fund houses and other market participants to use validated Unified Payments Interface (UPI) identification (IDs) for the collection of money from investors. The new UPI IDs will also have a visual security feature in the form of a ‘thumbs-up’ sign displayed next to valid IDs on all UPI apps.