In a welcome move, Portfolio Managers have been given a 3-month additional extension to comply with new norms relating to fees and charges, direct client on-boarding, nomenclature of ‘investment approach’, performance reporting, documents disclosure etc.

The first deadline was May 1, after which SEBI had extended the implementation date to July 1. 

"In  light  of market  events  due  to  CoVID-19  pandemic, SEBI, videCircular  No. SEBI/HO/IMD/DF1/CIR/P/2020/57  dated  March  30,  2020  extended, inter alia, the timeline for applicability of SEBI Circular No. SEBI/HO/IMD/DF1/CIR/P/2020/26 dated February 13, 2020 on ‘Guidelines for Portfolio Managers’. After  taking  into  consideration  requests  received  from  portfolio  managers and the prevailing business and market conditions, it has been decided to extend the timeline for compliance with the requirements of SEBI Circular....by further three months. Accordingly, the provisions of said SEBI Circular shall be applicable with effect from October 01, 2020," said a SEBI circular dated June 29, 2020. (SEBI Link to download circular)

SEBI in the second week of February had announced wide-ranging reforms, which would make the PMS industry even more transparent, more customer-friendly and even go ahead of emerging market peers. 

From October 1, 2020, no upfront fees  can be charged  by  the  Portfolio  Managers,  either directly  or indirectly, to the clients. Operating  expenses  excluding  brokerage, over  and  above  the  fees charged for Portfolio Management Service, will not exceed 0.50% per annum of the client’s average daily assets under Management (AUM). In case client portfolio is redeemed in part or full, the exit load charged will be charged in a graded manner as per year of exit (1% to 3% depending on the year). After  a  period  of  three  years  from  the  date  of  investment, there would be no  exit load, as per SEBI norms. However, there are PMSes not charging any exit load.

Also, charges  for  all transactions in  a  financial  year (Brokerage,  Demat, custody  etc.)  through self or associates  will be be  capped  at  20%  by value  per  associate (including  self) per  service.  SEBI directed that any  charges to self/associate  cannot be at  rates more than that paid to the non-associates providing the same service.   

Like direct plans of mutual funds, PMS will also have to allow direct on-boarding of clients. Portfolio  Managers would have to provide an option to clients to be on-boarded directly,  without inter-mediation  of  persons  engaged  in  distribution services. SEBI directed Portfolio Managers to prominently disclose in its disclosure documents, marketing material and on its website, about the option for direct on-boarding. At the time of on-boarding of clients directly, no charges except statutory charges can be levied.

Streamlining investment approach nomenclature, from October 1, the information about investment approaches offered by Portfolio Managers will have to be uniform across all types of regulatory reporting, client reporting,  disclosure  document,  marketing  materials  and  any  such document which refer to services offered by Portfolio Managers Importantly, any description of  investment  approach provided by  Portfolio  Managers will have to include investment objective, description  of  types  of  securities e.g.  equity  or  debt,  listed  or unlisted, convertible instruments, etc., basis  of  selection  of  such  types  of  securities  as  part  of  the investment approach etc. Also, the investment approach of PMS will have information on allocation of portfolio across types of securities, appropriate benchmark to compare performance  and  basis  for choice of benchmark, indicative tenure or investment horizon etc.

In periodic reporting compliance by Portfolio Managers, with  effect  from  Financial  Year  2019-20, Portfolio Managers to the Board will submit a certificate from the qualified Chartered Accountant certifying the net-worth  as  on  March  31,  every  year  based  on  audited  account within 6 months from the end of Financial Year. They would also give a certificate  of  compliance  with  PMS  regulations and SEBI circulars signed  by  the Principal  Officer,  within  60 days  of  end  of  each  financial  year.  Further,  details  of  any non-compliance along with the corrective actions, if any, duly approved by Board of the portfolio manager would need to be submitted.

Portfolio Managers from October 1 will have to submit a monthly regarding their portfolio management activity, on SEBI Intermediaries portal within 7 working days of the end of each  month, as the revised format. Portfolio Managers will also have to furnish a report in a given format to their clients on a quarterly basis.

Importantly, SEBI had directed Portfolio Managers to consider all cash holdings and  investments in liquid funds, for calculation of performance. Reporting of performance data would have to net of all fees and all expenses, including taxes. 

Further, PMS shops would have to ensure that performance reported in all marketing material  and website of the Portfolio Manager is the same as that reported to SEBI. The  aggregate  performance of the Portfolio Manager (firm-level performance) reported in any document will have to be same as the combined performance of all the portfolios managed by the Portfolio Manager.

This apart, there will be norms for disclosure documents for material and supervision of distributors .