Asset under advice

An investment adviser who recommends what a client should do with a Rs 2 crore portfolio has taken responsibility for Rs 2 crore of decisions — whether the client then executes the trades through the adviser, through a broker of her own, or not at all. Asset under advice (AUA) captures that: it measures the value of securities advised on, not the value handled.

It matters for one very practical reason. One of the two ways an investment adviser may charge fees is as a percentage of AUA, and the regulations cap that percentage.

Definition (SEBI (Investment Advisers) Regulations, 2013). "Asset under advice means the aggregate net value of securities for which the investment adviser has rendered investment advice irrespective of whether the implementation services are provided by an investment adviser or concluded by the client directly or through other service providers."

Three elements:

1. Aggregate net value — the total, net;
2. of securities on which investment advice was rendered;
3. irrespective of who implements — the adviser, the client directly, or another service provider.

The fee modes (SEBI guidelines for investment advisers, Chapter 19). Two modes are prescribed:

Related rules in the same guidelines.

• Fees accepted only through banking channels — account payee crossed cheque, demand draft, or direct credit by NEFT, RTGS, IMPS or UPI; no cash deposits, so there is an audit trail.
• No advice and no fee until the client has signed the investment advisory agreement and received a copy.
• Client-level segregation of advice and distribution: an individual adviser may not provide distribution services, nor may the adviser's family distribute to the adviser's clients.
• An individual adviser must apply for non-individual registration on or before reaching 150 clients.

What "investment advice" excludes. Advice through widely available newspapers, magazines or broadcast media is not investment advice for these regulations, and trading calls are not investment advice either — so AUA is built only from advice that counts as investment advice.

AUA (per client)      = Aggregate net value of securities on which advice was rendered

Maximum fee, AUA mode = 2.5% × AUA per annum per client
Maximum fee, fixed    = Rs 1,25,000 per annum per client
(workbook figures)

Illustrative figures. An adviser has three clients.

Fee ceilings under each mode.

Ravi:    2.5% × Rs 40 lakh  = Rs 1,00,000     vs fixed cap Rs 1,25,000
Fatima:  2.5% × Rs 1.2 crore = Rs 3,00,000    vs fixed cap Rs 1,25,000
Joseph:  2.5% × Rs 6 crore   = Rs 15,00,000   vs fixed cap Rs 1,25,000

For Ravi, the fixed-fee mode would allow a higher maximum; for Fatima and Joseph, AUA mode would. Either way, the fee is per annum per client across all services — the adviser cannot charge Joseph Rs 15 lakh for advice plus a separate "planning fee" on top.

Every rupee must come through a banking channel; a Rs 50,000 cash payment from Fatima cannot be accepted.

Chapter 19 (SEBI (Investment Advisers) Regulations, 2013), 2% of the paper, defines AUA among the key terms and sets the fee modes in its guidelines section.

Expect the definition's "irrespective of whether the implementation services are provided by an investment adviser or concluded by the client" clause, and the 2.5% and Rs 1,25,000 caps.

• Implementation does not matter. Securities are in AUA even if the client executes elsewhere.
• Advice, not custody. AUA is not assets held or managed by the adviser.
• 2.5% of AUA per annum per client, across all services — not per service.
• Two modes, one choice per the guidelines: AUA mode or fixed fee mode.
• No cash. Fees only by banking channels, so there is an audit trail.
• Trading calls and mass-media commentary are not "investment advice" and so do not build AUA.
• Stale-figure warning. SEBI amended the Investment Advisers Regulations in December 2024 and revised the framework for fee limits (including how and to which clients they apply). Learn the workbook's 2.5% and Rs 1,25,000 for the exam, and check the current limits before applying them in practice.