Portfolio managers should be paid if client gains: Sebi

 “It is proposed to be advised that, henceforth, profit sharing/performance related fees shall be charged on the basis of high water mark principle over the life of the investment,” Sebi said in a consultative paper on proposed policy for ‘Portfolio Managers – Regulation of Fees and Charges’ uploaded on its website. The high water mark principle means that if the portfolio value goes down and then recovers, the manager does not earn a fee till all losses have been made up.

At present, profit sharing /performance related fees are usually charged by portfolio managers upon exceeding a hurdle rate, or the minimum amount of return that a person requires before making an investment, as specified in the agreement. Sebi said the performance fees could be paid every quarter and based only on the increase in portfolio value in excess of the previously achieved high water mark.

“All fees and charges shall be charged on the actual amount of clients’ funds under management,” it said.

Sebi also suggested that in case an investor seeks to partially withdraw funds, all fees and charges shall be proportionately charged based on the time after which withdrawal is made and the value of funds withdrawn, and the high watermark shall be adjusted accordingly.