Not a Formality — A Specifically Mandated Document Structure
Every Investment Adviser is required to enter into a written advisory agreement with every client before any advice is given or fee charged — but the requirement goes further than simply "have a written contract." SEBI mandates specific content, incorporating both a standard agreement framework (Annexure A) and a distinct Most Important Terms and Conditions document (Annexure B), and a generic professional services agreement retrofitted for advisory use typically doesn't satisfy either.
Why the Agreement Must Precede Everything Else
No advice can be given, and no fee can be charged, before the client has signed the agreement and received a copy — this sequencing requirement means your onboarding process needs to be genuinely structured so the agreement execution happens first, not as a formality completed alongside or after initial advisory conversations have already begun.
What Annexure A (the Core Agreement) Must Cover
The core agreement establishes the fundamental terms of the advisory relationship — scope of services, fee structure and mode, duration, and the parties' respective rights and obligations. This needs to be specific to the actual advisory relationship being established, not a generic template that could apply equally to any professional service.
What the MITC (Annexure B) Specifically Requires
The Most Important Terms and Conditions document exists to surface the client-protection-critical terms in a clear, standalone format — separate from the fuller agreement — so a client can't reasonably claim these specific points were buried in dense legal language. One MITC clause in particular deserves specific attention: the IA cannot execute any trade without the client's specific, positive consent on every trade — meaning even under an ongoing advisory relationship, discretionary trade execution without per-trade consent isn't permitted under the standard IA framework.
Client Consent — Physical Signature or Legally Acceptable E-Signature
SEBI's framework accommodates modern onboarding practices — client consent can be captured via physical signature or a legally acceptable e-signature method, including DigiLocker/Aadhaar e-sign — meaning a fully digital onboarding process is genuinely compliant, provided the e-signature method itself meets the legal acceptability bar.
Why Using a Generic Agreement Template Is a Recurring Compliance Gap
We regularly encounter advisory practices — particularly newer ones, or those transitioning from another professional service — using an agreement template built for general consulting or professional services, modified superficially for advisory use. This typically misses the specific MITC content, the per-trade-consent clause, and other IA-specific provisions SEBI's framework mandates, creating a real compliance gap even where the practice's actual conduct with clients may be entirely appropriate.
Keeping Your Agreement Current as Regulations Evolve
Because the Master Circular and underlying regulations are amended periodically, an agreement template that was fully compliant at your practice's registration may drift out of alignment with current requirements over time if it isn't periodically reviewed — this is a genuine, if easy to overlook, ongoing compliance task rather than a one-time drafting exercise.
Drafting and Reviewing Compliant Client Agreements
We draft and periodically review Investment Advisory Agreements and MITC documentation for our IA clients, ensuring both the core agreement and the specific mandated MITC content stay current with SEBI's requirements as they evolve.
Using a generic or aging agreement template with your advisory clients? Let's get it properly reviewed and brought current — talk to Anuj Desai & Associates.
This article is for general informational purposes and does not constitute legal advice on any specific client agreement.