The Securities and Exchange Board of India (SEBI) has asked portfolio managers to disclose details of fee structure, maximum liability of the client, including fees and other charges as also the dispute settlement mechanism in their client agreements.
The move is aimed at bringing about greater uniformity, clarity and transparency with regard to fees and charges, the market regulator said in a consultative paper on `Regulation of fees and charges charged by portfolio managers'.
SEBI has now proposed that, henceforth, profit sharing or performance-related fees should be on the basis of high watermark principle over the life of the investment, as against the current practice of levying charges upon exceeding a hurdle rate specified in the agreement.
High watermark is the highest value that the portfolio/account has reached and as per the SEBI proposal, if the portfolio value goes down and then recovers, the manager does not earn fees till all losses have been made up.
The value of the portfolio for computation of high watermark should be the highest value on the date when performance fees are charged. For charging performance fee, the frequency should not be less than quarterly.
Any successive performance fee should be based on increase in portfolio value in excess of the previously achieved high water mark.