The Securities and Exchange Board of India (Sebi) notified its norms for portfolio managers on Tuesday, doubling the minimum investment amount to be taken from clients to Rs 50 lakh and asking such managers to raise their net worth to Rs 5 crore within three years of notification.

Under portfolio management services (PMS), portfolio managers offer customised investment advice to clients, typically high net worth individuals.

The regulator has disallowed portfolio managers from charging upfront fees from clients, either directly or indirectly.

In 2018, Sebi had done something similar for mutual funds (MFs), banning upfront commission, and asking the industry to adopt a full-trail model of paying commission.

This will impact distributors as a portion of the upfront fees was directly paid to them.

A PMS fee structure typically includes set-up or upfront fees of 2-2.5 per cent and is a one-time fee to be paid in the first year.

Fees also include fixed fees charged annually, or a combination of fixed and variable fees computed as a percentage of the profits generated.

Portfolio managers can now invest in units of MFs only through direct plans, and distribution-related fees of any kind cannot be charged to the client for such plans. Investors stand to benefit as their expenses will reduce.

The regulator has asked portfolio managers not to leverage the portfolio of clients for investment in derivatives and not indulge in speculative transactions that are not accompanied by actual delivery, except for derivatives trades. This is done with the intention of reducing volatility in the market and curbing undue risks, said experts.

“The portfolio manager shall not deploy the clients’ funds in bill discounting, badla financing or for the purpose of lending or placement with corporate or non-corporate bodies,” the notification said.

Discretionary portfolio managers have been barred from investing in unlisted securities.

Those offering non-discretionary or advisory services, on the other hand, can invest or provide advice for investment up to 25 per cent of the assets under management of such clients in unlisted securities.

Portfolio managers cannot invest client’s fund based on the advice of any other entity.

“I cannot outsource investment advice. Research capabilities will now have to be in-house, which means smaller PMS or one-man shops will suffer,” said a senior portfolio manager. #casansaar (Source - PTI, Business Standard)