The Securities and Exchange Board of India (Sebi) has asked investment advisors (IAs) and research analysts (RAs) to share the most important terms and conditions of their services (MITC) of their services with clients and get their consent.
These terms are required to be standardised by the Industry Standards Forum (ISF) in consultation with Sebi and the relevant supervisory bodies - Research Analyst Administration and Supervisory Body (RAASB) for RAs and Investment Adviser Administration and Supervisory Body (IAASB) for IAs, Sebi said in two separate circulars on Monday, February 17.
Sebi has mandated RAs and IAs to inform the MITC to their clients by June 30, 2025, via email or any other suitable mode of communication which can be preserved. The move comes after concerns were raised by RAs over ease-of-doing-business issues.
What Does These MITCs Outline?
These MITCs outline important service terms, including fee structures, prohibitions on guaranteed returns, and conflict of interest disclosures.
Under the MITC guidelines, both RAs and IAs are restricted from executing trades on behalf of clients. Both are prohibited from guaranteeing returns, offering risk-free investments, or promoting fixed-return schemes. Sebi registration, enlistment with IAASB/RAASB, and NISM certification do not assure returns or guarantee the performance of an RA or IA.
The fee structures for RAs and IAs are regulated to prevent excessive charges. For individual and HUF clients, both RAs and IAs can charge a maximum fee of Rs 1,51,000 per year per family, excluding statutory charges.
The circulars also specify that RAs can collect advance fees for a maximum of three months, while IAs can collect up to six months’ fees in advance. However, Sebi recently floated a consultation paper proposing an extension of this period to one year following requests from both registered entities.
In cases of early termination, clients are entitled to a proportional refund for the unused period, although IAs can retain a breakage fee of up to three months.
IAs have the additional responsibility of assessing and updating their clients’ risk profiles before offering investment advice. They must ensure that the advice aligns with the client’s financial situation and recommend direct, non-commission-based investment plans wherever possible. Both RAs and IAs are required to disclose any conflicts of interest that could impact their services.
