Advisory services

Portfolio management services come in three types. The difference is who decides and who acts.

• In a discretionary service, the portfolio manager decides and places the trades.
• In a non-discretionary service, the client decides and the manager places the trades.
• In advisory services, the manager does neither.

In advisory services, the manager only suggests investment ideas or gives advice the client need not follow. The investor makes the decisions and places the trades.

The workbook notes who usually uses this service. It is institutional clients. They run their own portfolios. But they hire experts in each country to advise them.

The three service types (Chapter 7, section 7.2).

Rules that change for advisory services.

• Custodian. Every portfolio manager must appoint a custodian — except one that provides only advisory services (Chapter 7, section 7.5.4; Chapter 12 adds co-investment portfolio managers).
• Unlisted securities. A manager offering non-discretionary or advisory services may invest or advise investment of up to 25% of the AUM of such clients in unlisted securities, in addition to the securities permitted for discretionary management. For large value accredited investors, discretionary, non-discretionary or advisory services may go up to 100% in unlisted securities, subject to disclosures and agreed terms (Chapter 12, section 12.4.2).
• Fees. The investment management fee is described as "investment management and advisory fee" and may be fixed, return-based, or both (Chapter 8).

Disclosure. The disclosure document's description section must state the services offered — discretionary, non-discretionary or advisory (Chapter 8). The PMS distributor code of conduct requires informing clients of the risks and level of control associated with each type (Chapter 12), and the Investor Charter covers advising investors regarding their investment decisions.

Illustrative institution and amounts; the 25% limit and the custodian exemption are the workbook's.

A pension trust with a ₹200 crore equity book runs its own portfolio but hires a PMS firm on an advisory basis for Indian market ideas.

Contrast with a non-discretionary mandate on the same ₹200 crore: the trust still decides, but the portfolio manager executes every trade after consulting the client. And under a discretionary mandate, the manager would decide and execute without asking each time.

If the adviser recommends a stock and the trust ignores the advice, nothing happens — the advice is non-binding.

Chapter 7 (Role of Portfolio Managers) defines the three service types and is the source of a sample question: except for the manager providing only advisory services, every portfolio manager must appoint a custodian. Chapter 12 (SEBI (Portfolio Managers) Regulations, 2020) adds the 25% unlisted securities limit and the PMS distributor's duty to explain the level of control in each type. Chapter 8 lists advisory in the disclosure document. Questions typically ask who decides and who executes.

• Non-discretionary ≠ advisory. In non-discretionary services the manager executes; in advisory services the client executes.
• Advisory services are non-binding.
• Custodian exemption applies to a manager providing only advisory services. A firm that also runs discretionary portfolios is not exempt for those.
• 25% unlisted limit covers non-discretionary and advisory, not discretionary; the 100% figure is for large value accredited investors across all three types.
• Typically used by institutional clients, per the workbook — not typically by retail HNIs.