Two Modes, One Client, One Choice Per Year
SEBI's fee framework for Investment Advisers is deliberately narrow: an IA can charge a client under either the Assets under Advice (AUA) mode or the Fixed Fee mode — never a hybrid of both for the same client in the same year, and the choice must be exercised annually, documented, and can't be switched mid-year at the adviser's discretion. This structure exists specifically to prevent the kind of fee layering that used to let advisers stack multiple charging bases on the same client relationship. Getting the mode selection and cap computation wrong is one of the more common findings in SEBI's IA compliance audits — and one of the more avoidable ones.
AUA Mode — Percentage of Assets Under Advice
Under AUA mode, the IA charges a percentage fee calculated on the assets the client holds under the adviser's ongoing advice. SEBI caps this at a maximum of 2.5% per annum of the AUA, computed and billed on terms specified in the client agreement — but even within the AUA structure, the fee must not translate into an amount that circumvents the overall per-client, per-annum ceiling that applies across both modes.
Fixed Fee Mode — Flat Annual Charge
Under Fixed Fee mode, the IA charges a flat amount, unrelated to the client's asset size, which is more commonly used for smaller portfolios or clients who prefer certainty over a percentage-linked structure.
The ₹1,51,000 Cap — What It Actually Covers
The headline number most IAs quote — ₹1,51,000 per annum per client — is the maximum aggregate fee an individual IA (or IA firm, subject to specific conditions) can charge a single client across all advisory services in a financial year, regardless of which mode is chosen. This is not two separate caps for two separate modes; it's a single ceiling that the AUA percentage or fixed fee amount must fall within. For clients with very large AUA, the 2.5% AUA-mode calculation can easily exceed ₹1,51,000 — in which case the cap, not the percentage, governs what can actually be billed.
A common misreading we see: advisers assume the cap applies per service line (say, a separate ₹1,51,000 for financial planning and another for portfolio advice on the same client). It doesn't. The cap is per client relationship, aggregated across everything the IA charges that client for advisory services in the year.
Mode Switching Restrictions
Once a fee mode is selected for a client for a given financial year, it cannot be changed mid-year. The switch can only happen at the start of the next financial year, and needs to be documented in the client agreement update. Advisers who try to shift a client from fixed fee to AUA mode (or vice versa) partway through the year — often because AUA has grown and the adviser wants to capture more fee — are working outside the permitted structure, and this is exactly the kind of thing that surfaces in a compliance audit trail review.
Documentation That Has to Exist
For every client, SEBI expects the IA to be able to demonstrate:
- The fee mode selected for the current financial year, documented in the client agreement
- The computation basis — AUA valuation methodology and date, or the fixed fee schedule
- The aggregate fee actually charged, reconciled against the ₹1,51,000 (or applicable) cap
- No fee overlap across different advisory mandates for the same client that together breach the cap
How We Help
At Anuj Desai & Associates, fee structure compliance is one of the most frequent findings we correct during IA compliance audits — not because advisers are trying to circumvent the cap, but because the mode-switching and aggregation rules are genuinely easy to misapply across a growing client book. Our scope includes:
- Fee structure design — setting up compliant AUA and fixed fee schedules aligned with your client mix
- Annual compliance audit — verifying fee computation, mode selection documentation, and cap adherence across your full client base
- Client agreement review — ensuring fee mode terms are properly documented and updated at each annual renewal
- Remediation support — if a past audit or self-review has flagged fee structure issues, we help correct and document the fix before it surfaces in a SEBI inspection If you want your fee structure reviewed before your next annual compliance audit, write to office@anujdesaiassociates.com or call +91 96194 56656.