In a recent circular dated May 2, 2024, SEBI addresses significant concerns related to the digital client onboarding process, with a focus on enhancing transparency through comprehensive disclosures. This circular will be effective from October 1, 2024, Here's a breakdown:
1. Simplified Digital Onboarding:
SEBI recognizes the importance of digital onboarding in today's fast-paced landscape. It mandates portfolio managers to ensure clients fully grasp fee structures before onboarding. This includes modifications to the agreement process, allowing clients to acknowledge the fee structures either through handwritten notes or electronically.
2. Fee Calculation Tool:
In an effort to empower clients, portfolio managers must provide a fee calculation tool. This tool offers clients a holistic view of fee options, including multi-year calculations and adherence to the high watermark principle. By providing this tool, clients can make well-informed decisions regarding fee structures.
3. Additional Fee Disclosures:
SEBI stresses the significance of transparency by introducing additional fee disclosures and entails modifications to the PMS-client agreement and periodic reports. Performance fees now come with detailed illustrations covering various scenarios, ensuring clients have a clear understanding of potential charges. Additionally, periodic reports must include an annexure detailing fee calculations, thereby enhancing transparency and accountability.
4. Most Important Terms and Conditions (MITC) Document:
SEBI introduces the MITC document to simplify critical aspects of the portfolio manager-client relationship. This document, to be acknowledged by clients, aims to ensure they have a clear understanding of essential terms and conditions. For existing clients, MITC will be communicated via email or other suitable means.
Note: The standard procedure for on-boarding of client through digital mode and the standard format for MITC shall be specified by APMI, in consultation with SEBI.
Source: SEBI CIRCULAR NO. SEBI/HO/IMD/IMD-PoD-1/P/CIR/2024/35 at https://www.sebi.gov.in/legal/circulars/may-2024/portfolio-managers-facilitating-ease-in-digital-on-boarding-process-for-clients-and-enhancing-transparency-through-disclosures_83147.html
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