A Genuine, Recurring Business Scenario SEBI Has Specifically Addressed
It's increasingly common for a client to already have investments placed through a mutual fund distributor or other commission-based channel, while separately wanting an independent, fee-based second opinion from a registered IA on those same holdings. SEBI's framework specifically accommodates this scenario — but with distinct fee and disclosure rules that don't apply to standard advisory engagements.
What "Second-Opinion" Advisory Actually Covers
This refers to an IA providing advisory input specifically on assets the client holds through a pre-existing distribution arrangement elsewhere — the client isn't asking the IA to execute new transactions or take over management of those assets, but wants an independent, fee-based assessment of holdings that were placed and continue to sit through a separate distributor relationship.
The Fee Cap for Second-Opinion Advice
Where an IA charges for this kind of second-opinion advisory, the fee is capped under the AUA (Assets Under Advice) mode specifically, at 2.5% of such assets — the same percentage ceiling that applies to standard AUA-based advisory fees, but calculated specifically against the assets being reviewed under the second-opinion engagement, not the client's total advisory relationship.
The Mandatory Annual Disclosure Requirement
Critically, this fee structure requires annual disclosure and consent confirming the client understands they are separately incurring distributor costs on the same assets — layered on top of the second-opinion fee they're now also paying the IA. This disclosure isn't a one-time item at engagement start; it needs to be refreshed annually, ensuring the client's understanding of the dual-cost structure remains current, not just assumed from an initial conversation.
Why This Disclosure Requirement Exists
Without this specific disclosure obligation, a client could end up paying two layers of cost on the same assets — ongoing distributor commission plus a separate advisory fee — without fully appreciating the combined economics. SEBI's annual consent requirement ensures this remains a genuinely informed, ongoing choice by the client, not something that fades into the background after the first year.
Documenting This Correctly in Your Practice
A second-opinion advisory engagement should be clearly distinguished in your client agreement from a standard, full advisory relationship — specifying which assets fall under the second-opinion scope, confirming the 2.5% AUA cap is being correctly applied to that specific asset pool (not the client's broader portfolio), and building the annual disclosure/consent refresh into your standing compliance calendar for that client.
Why This Is a Genuinely Useful Service Line, Structured Correctly
Second-opinion advisory can be a meaningful, legitimate service offering — particularly for clients who value independent scrutiny of distributor-placed holdings without wanting to fully unwind an existing distribution relationship. The key is ensuring the engagement is structured, fee-capped, and disclosed exactly as SEBI's framework requires, rather than informally blended into a standard advisory arrangement.
Structuring Second-Opinion Engagements Correctly
We help IAs structure second-opinion advisory engagements — fee cap compliance, client agreement language, and the annual disclosure/consent process — so this service line stays cleanly compliant rather than creating ambiguity in your broader fee structure.
Offering or considering second-opinion advisory for clients with existing distributor relationships? Let's make sure it's structured correctly — talk to Anuj Desai & Associates.
This article is for general informational purposes and does not constitute regulatory advice specific to any adviser's fee structure.