An alert for Investment Advisers w.r.t the clauses applicable from April 01, 2021

Hi,

Year end is approaching and to ensure that the FY 2020-21 is effectively closed, we would like to draw your attention towards the compliance with the cut off dates set out in the SEBI circular no SEBI/HO/IMD/DF1/CIR/P/2020/182 dated September 23, 2020.

SEBI vide circular no SEBI/HO/IMD/DF1/CIR/P/2020/182 dated September 23, 2020 issued guidelines for Investment Advisers. As you are aware, various clauses in the said circular were applicable from different dates.

This alert summarizes the clauses applicable to your investment advisory activities from April 01, 2021.

Applicable Clauses- to be complied from April 01, 2021 are as below:

1. Client level segregation of advisory and distribution activities

Segregation of advisory and distribution activities at client level i.e. an entity can provide both advisory and distribution but not to the same client.

Individual IAs

- No distribution services by self or family to advisory client;
- A client who is receiving distribution services from family, cannot be an advisory client
Non-individual IAs
- Same client cannot be offered both advisory and distribution services within the group;
- Arm’s length relationship to be maintained between its activities as investment adviser and distributor using separate division or department
- A client can either be an advisory client where no distributor consideration is received at the group level or distribution services client where no advisory fee is collected from the client at the group level.
General Clauses:

- Existing client should be given an option to choose between advisory or distribution services going forward.
- Family of client would be reckoned as a single client
- Family shall mean individual, dependent spouse, dependent children and dependent parents.
- ‘Group’ for this purpose shall mean an entity which is a holding, subsidiary, associate, subsidiary of a holding company to which it is also a subsidiary or an investing company or the venturer of the company as per the provisions of Companies Act, 2013 for non-individual investment adviser which is a company under the said Act and in any other case, an entity which has a controlling interest or is subject to the controlling interest of a non-individual investment adviser.

2. Agreement between Investment Adviser and client

IA shall enter into investment advisory agreement with its clients including existing clients latest by April 01, 2021 and submit a report, confirming the same to SEBI latest by June 30, 2021. The said agreement shall mandatorily cover the terms and conditions provided in the circular dated September 23, 2020.

The mandatory details to be included in Terms and conditions documents are as below:

Appointment of the Investment Adviser
First page contents;
- Consent of the client
- Declaration from the Investment Adviser
- Fees specified as per regulation
- Fees charged to the client
Scope of Services
Functions of the Investment Adviser
Investment Objectives and Guidelines
Risk Factors
Validity of Advisory Services
Amendments
Termination
Implications of Amendments and Termination
Investment Adviser engaged in other services
Representation to client
No right to seek Power of Attorney
No Conflict of Interest
Maintenance of Accounts and Confidentiality
Terms of Fees and Billing
Liability of Investment Adviser
Representations and covenants
Death or Disability of client
Death or Disability of investment adviser
Settlement of disputes and provision for arbitration
Adherence to grievance redressal timelines
Severability
Force Majeure
Miscellaneous

3. Fees

Regulation 15A of the amended IA Regulations provide that Investment Advisers shall be entitled to charge fees from a client in the manner as specified by SEBI, accordingly Investment Advisers shall charge fees from the clients in either of the two modes i.e. Fixed Fee and Percentage of Asset under Advice (“AUA”)

Fixed Fee:
- Maximum Rs. 1,25,000/- per annum per family across all schemes/ products/ services provided by IA.
Percentage of Asset under Advice (“AUA”):
- Maximum 2.5% of AUA per annum per family across all schemes/ products/ services provided.
- AUA should be demonstrated using documents related to investments.

General Clauses:
- “Family of client” constitutes individual, dependent spouse, dependent children and dependent parents.
- Up to 2 quarters fees can be charged in advance.
- Refund of fees in case of pre-mature termination of agreement, subject to a maximum breakage fee of not greater than one quarter can be retained.

After a year full of challenges, you’re likely excited to start fresh in a new year that will (hopefully!) feel a lot less chaotic. Take a leap of faith and begin this wondrous New Financial Year by believing in your ability to thrive. We would be happy to be a part of your journey and watch your thrive.

For any query you can connect to us at +91 98197 28359 or email your queries to mail@csmeghakyal.in .