SEBI Allows IAs to Give Second Opinion | Charge Up to 2.5% AUA on Distributed Assets

Circular No. HO/38/12/11(1)2025-MIRSD-POD/ I/71/2025, Dated: 30.10.2025

Background

The Securities and Exchange Board of India (SEBI) has issued a circular allowing Investment Advisers (IAs) to charge Assets Under Advice (AUA)-based fees on assets that are already under a distribution arrangement, provided the client seeks a second opinion.
This measure addresses a long-standing industry request for clarity on advisory fee structures applicable to clients who wish to obtain independent, professional advice on investments managed through distributors.

Key Change – AUA-Based Fee on Distributed Assets

Under the new framework, SEBI permits:

• Investment Advisers to levy AUA-based fees even on assets that are already covered under a distribution arrangement,

• Only when the client specifically requests a second opinion on such investments.

The fee cap for this arrangement is set at up to 2.5% of such assets per year, maintaining regulatory oversight to prevent overcharging or duplication of advisory costs.

Disclosure and Consent Requirements

To ensure transparency and investor awareness, IAs are required to:

1. Clearly disclose to the client that distributor commissions or costs will continue alongside the advisory fee, and

2. Obtain explicit consent from the client on an annual basis confirming their understanding and acceptance of the dual cost structure.

This requirement ensures that clients are fully informed of the overlapping fee arrangements before continuing with the advisory engagement.

Objective of the Circular

The circular aims to:

• Facilitate greater access to professional advice for investors who wish to validate distributor-recommended portfolios,

• Clarify permissible fee structures for IAs in mixed advisory-distribution scenarios,

• Enhance transparency in investor-adviser relationships, and

• Ensure informed consent in all fee-based advisory engagements.

Effective Date

The revised provisions come into immediate effect from the date of issuance of the circular, making the changes applicable to all ongoing and new advisory relationships henceforth.

Impact and Industry Significance

The update is expected to:

• Empower clients to seek unbiased second opinions without regulatory ambiguity,

• Allow IAs to expand their advisory offerings transparently, and

• Reinforce SEBI’s commitment to balanced investor protection and professional flexibility in the financial advisory ecosystem.

Conclusion

With this circular, SEBI has provided much-needed clarity on the applicability of AUA-based fees for second-opinion advisory services.
By capping fees at 2.5% annually, mandating clear disclosures, and requiring yearly consent, SEBI ensures that the framework remains investor-centric, transparent, and compliant with fair advisory practices.

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