In a major relief to research analysts, the Securities and Exchange Board of India (SEBI) has proposed easing regulations regarding the collection of advance fees from clients, extending the restriction to a year from one quarter.
Under the present rules, research analysts (RAs) were permitted to charge advance fees from clients for only one quarter, a restriction that raised viability concerns among several analysts. The curb affected operational capabilities and also pressured analysts to produce short-term returns to justify renewing quarterly subscriptions.
Over the past two months, several independent and small research analysts also announced the closure of their businesses due to increased regulatory burden and compliance.
Taking into account these concerns, the regulator “proposed to revise the provision related to the period of advance fee and make it not more than a year” through a draft paper on Wednesday, inviting public comments until February 27.
Further, the regulator clarified that in cases of premature termination by clients, RAs would be required to refund fees for the unexpired period without charging any brokerage fee. However, investment advisors (IAs) may retain a breakage fee of up to one quarter to cover client onboarding costs.
These norms will not apply to non-individual clients, accredited investors, or institutional investors seeking proxy advisory services. Fee structures will continue to be governed by bilaterally negotiated contracts for these entities.