SEBI Circular Update: Enhancing Transparency and Ease in Portfolio Management Services

Posted On - 7 May, 2024 • By - Hariom Bajpai

Dear Investors,

We are thrilled to bring you the latest regulatory update from the Securities and Exchange Board of India (SEBI), aimed at fostering transparency and enhancing the ease of engagement for investors in Portfolio Management Services (PMS). On May 02, 2024, SEBI issued a circular[1] introducing significant amendments to the existing framework governing Portfolio Managers.

These changes, set to come into effect from October 01, 2024, are designed to streamline the digital onboarding process for clients and fortify disclosure norms, thereby empowering investors and fostering a more robust portfolio management ecosystem.

Here’s a comprehensive breakdown of the key revisions introduced in the circular:

1. Client Agreement Specification:

   – Portfolio Managers are now mandated to enter into a comprehensive agreement with clients, explicitly defining the relationship dynamics, rights, and obligations concerning portfolio management. These specifications are outlined in detail in Schedule VI of the SEBI (Portfolio Managers) Regulations, 2020.

2. Fee Disclosure Annexure:

   – To ensure utmost clarity regarding fees and charges, new clients must now separately sign an annexure detailing the fee structure. This annexure serves as a vital acknowledgment of the client’s understanding of the fee framework. Clients are required to handwrite this annexure for physical onboarding or type it electronically for digital onboarding.

3. Fee Calculation Tool:

   – In a move towards enhancing transparency, Portfolio Managers are now obligated to provide clients with a fee calculation tool. This tool serves to illustrate various fee options along with multi-year fee projections, incorporating the high watermark principle. It is to be provided to all new clients onboarded on or after October 01, 2024.

4. Fee Illustrations:

   – To provide investors with a clearer understanding of fee structures, Portfolio Managers will furnish clients with one-year and multi-year fee illustrations. These illustrations will cover diverse scenarios, including portfolio value increase, decrease, or remaining unchanged, and will incorporate the high watermark principle.

5. Periodic Report:

   – Clients will receive periodic reports from Portfolio Managers in the amended format specified in Appendix 5D of the Master Circular for Portfolio Managers March 20, 2023. These reports aim to enhance transparency and provide investors with insights into their portfolio performance.

6. Terms and Conditions:

   – An additional document highlighting the “Most Important Terms and Conditions” will be provided to clients for acknowledgment. This serves to ensure that clients are fully informed of the key aspects governing their engagement with Portfolio Managers.

7. Fee Assurance:

   – Portfolio Managers are entrusted with the responsibility of ensuring that no additional fees beyond those outlined in the annexures to the PMS-Client Agreement are charged to clients. This measure aims to safeguard investor interests and maintain fairness in fee structures.

These amendments underscore SEBI’s unwavering commitment to investor protection and market integrity. By fostering transparency and streamlining processes, SEBI seeks to empower investors and strengthen the overall framework governing Portfolio Management Services.