In a move aimed at promoting investor choice and easing operational restrictions on registered professionals, the Securities and Exchange Board of India (SEBI) has issued a new circular — HO/38/12/11(1)2025-MIRSD-POD/I/71/2025, dated October 30, 2025. The circular introduces a key ease of doing business measure that allows Investment Advisers (IAs) to provide a second opinion to clients on assets that are already under a pre-existing distribution arrangement with another entity.
Background: The Issue with Existing Regulations
Under Clause 1(iii)(f) of SEBI’s Master Circular for Investment Advisers, any portion of a client’s Assets Under Advice (AUA) held under a pre-existing distribution arrangement could not be considered for charging advisory fees. This meant that if a client had mutual fund or portfolio investments managed through a distributor, an IA could not charge a fee based on those assets, even if the client sought an independent evaluation or advisory perspective.
While this rule was designed to prevent conflicts of interest and double charging, it unintentionally restricted clients who wanted an objective second opinion on their existing investments. Industry associations representing IAs raised this issue with SEBI, noting that such clients were effectively denied access to unbiased advice on a large portion of their portfolios.
SEBI’s Response: Allowing Fair Access to Second Opinions
Taking these representations into account, SEBI has now introduced a measured relaxation that strikes a balance between investor protection and business flexibility for advisers.
As per the new circular, SEBI has decided the following:
- IAs Can Now Charge a Limited Fee on Such Assets:
Investment Advisers may now charge fees on assets held under a pre-existing distribution arrangement, subject to a cap of 2.5% per annum of the asset value. This enables advisers to fairly charge for their expertise while ensuring clients are not overburdened with costs. - Mandatory Disclosure and Client Consent:
In such cases, IAs must disclose to clients that, in addition to the advisory fee, they may also be paying distributor commissions on the same assets. Furthermore, client consent must be obtained annually, ensuring transparency and continued awareness of all costs involved. - Revision of the Master Circular Clause:
SEBI has revised Clause 1(iii)(f) of the Master Circular to formally reflect this change. The updated clause explicitly allows IAs to charge fees on assets under pre-existing distribution arrangements when providing second opinions — with the 2.5% cap and the required disclosure and consent mechanisms in place.
Effective Immediately
The provisions of this circular are effective immediately. This means that registered Investment Advisers can start offering second-opinion services to clients right away, provided they adhere to the specified fee limits and disclosure norms.
Implications for Investors and Advisers
This regulatory update marks a progressive step for India’s investment advisory ecosystem. It empowers investors to seek independent advice on their existing portfolios without being restricted by legacy distribution relationships. For Investment Advisers, it opens up a new avenue of service, allowing them to assist clients holistically while maintaining transparency and compliance.
By facilitating a framework where investors can access unbiased professional opinions on their distributed assets, SEBI continues to reinforce its dual mandate — protecting investors’ interests and enhancing the quality of financial advice in India.