Fee based services Security, Features, Documents, Defaults

The term fee-based investment refers to a product offered by an investment company, bank, or other institution where the financial professional is compensated through a fee as well as a commission for selling the investment vehicle. The investor covers the fee, which covers things like advice, account access, and any other service related to the investment itself, while the commission comes from the investment provider. Financial professionals who sell fee-based investments are called fee-based advisors.

The term fee-based is often used to describe a hybrid advisor or a dually registered advisor. This is a professional who charges fees to certain clients and earns commissions by selling products to others. So, the investor is charged one or more fees for the services provided by a financial planner or advisor, while commissions are paid by companies that provide the investment. Fee-based investments vary depending on the planner who sells them. Like the products other advisors offer, they can range from retirement and estate accounts to regular investment accounts. Fee-based advisors may sell mutual funds, stocks, bonds, and other securities.

Fees may be a fixed amount or a certain percentage of the assets under management (AUM). In many cases, the commissions a fee-based advisor earns are fixed into the investment product itself, like the management expense ratio (MER) of a mutual fund.

Benefits to clients:

Professional Guidance

As an investor, you are flooded with information in the media and on the Internet that can help you make financial decisions. However, you likely don’t have the time to research each investment strategy and product to determine whether or not it’s appropriate for your situation and needs. By monitoring your portfolios and conducting ongoing research, we seek to help you feel more comfortable knowing your money is being professionally managed.

Regular, Personalized Communication

Fee-based services rely on an ongoing relationship. We meet at least once a year to ensure your investment policy is on track towards its goals. You will also receive a regular quarterly performance report that illustrates your progress. This regular communication can help you gain confidence in our investment strategy.

Greater Transparency

In today’s economic climate, transparency is a key factor in consumer confidence. When compared to commission-based services, fee-based services are much more transparent. Advisory fees are a fixed percentage of a client’s accounts’ values and are clearly displayed in the quarterly performance reports.

A Mutual Incentive

Our compensation as investment adviser representatives is a fixed percentage of your accounts’ values. This means that the performance of your advisory accounts is directly proportional to the fees we collect. We are genuinely motivated to grow your portfolio and preserve your wealth.

A Disciplined Approach

Markets inevitably rise and fall, and trying to time the market can be difficult and costly. Following an investment policy helps to institute a methodical, disciplined approach to investing that can strike a balance between risk and reward.

Potential Tax Benefits

Fees for advisory accounts are potentially deductible against your federal income taxes, which could translate into savings. Speak with your tax professional for more details.

Types:

Advising on Capital Restructuring:

For the purpose of fresh issue, the companies have to present and prepare their Balance Sheet in a healthy form but not with the product of window dressing which produces an effective use and application of financial management as a whole. It is not an easy task. It requires a lot a practical exercise and experience. Sometimes, professional advice may also be required.

Needless to mention here that NBFC can supply the necessary service for the purpose on various matters by giving their valued advices and instructions, e.g., capital structuring/restricting, so that the financial health of the enterprise through the Balance Sheet would be looked better. Since, it is a fee based service it will, no doubt, earn a lucrative amount.

Advising on Acquisition and Mergers:

NBFC should pay the proper attention in this field. In order to consolidate the firm and to form a new one or to enjoy the benefits of economies of large scale, many companies are interested to amalgamate. The matter is very clear and simple if the management of both the companies is ready to do so.

To have these objectives, sometimes the promoters misuse their powers over the various companies. For this purpose, the Government has laid down certain guidelines prescribing the maximum limit of holding by the NRJs in the Indian companies recently.

Corporate Counselling:

The corporate counselling is an another attractive fee based service. At the time of diversification, expansion and development, a medium size company needs the service of an expert relating to the above for which they seek the advice from various institutions. The institutions also come forward to assist them as soon as they receive the formal request from such firms.

Now, in this context the role of NBFCs is very important. They can perform various functions relating to the generation of funds by developing the existing systems and pointing out the weak areas of the companies.

Portfolio Management:

Portfolio management implies the investment of funds taken from numbers/clients in various securities and an adequate return should be given to them. In other words, it is a scheme by which the portfolio manager raise funds from his clients/members with a commitment in order to operate the securities market together with the information, in well explained terms relating to the composition of portfolio, annual return, appropriation of capital, the extent of risk etc.

The manager must be authorised by the Securities and Exchange Board of India positively. Before certifying a manager as authorised, the SEBI will enquire about the infrastructure and truck record of the firm For this purpose, a minimum amount of net worth/shareholders’ fund has been fixed at Rs. 50 lakhs.

It is the duty of the portfolio manager to maintain the funds which belong to his clients/ members with the schedule bank in a separate account, which will be invested according to the terms specified. The manager is, however, entitled to a fixed fee and not a variable one depending upon the returns to the clients/members accordingly.

Project Counselling:

It is practically coming from the concept of corporate counselling and under the circumstances, the concerned company employs engineers and MB As and other technical persons who are experts in the area of project management.

If the client desires to invest his resources on long term basis to any project and is ready to invest such funds accordingly as per guidelines presented by the consultant company, the same task can be performed by the NBFC accordingly. Better result can be achieved if these companies form an informal association or a guild.

Arranging the Foreign Collaboration:

It is one of the most significant tasks of the project management and the companies to arrange the foreign collaboration particularly who wants to specialise in the above area and should consider the matter carefully.

As a result of the liberalisation relating to industry and capital market by the Government of India, the companies are employing their resources which they acquire by issuing shares via primary capital route and as such, are interested for good projects relating to either export oriented project or import substitution projects.

Loan/Lease Syndication:

The practising Chartered Accountants who supply the liaison services to the clients where they are in need of funds whether for the purpose of working capital or for term loan purposes.

At present, it has been found that the Chartered Accountant firms are keen interested to keep in touch with the large group of companies and are trying to improve their contact with others with the help of such giant clients who are doing quite successful business.

When a company finds it difficult to procure funds who has some problems, weakness and is not able to get various services, these firms appear in the picture and act as an intermediary between the institution and the company as well In this particular case, NBFC, can play a very prominent role for procuring funds and assist them in various ways, can supply the necessary services for those clients.

They can act as a broker and their fees must be comparable with the fees charged by the Chattered Accountant firms. In order to serve these services, NBCFs should have a direct contact with the high officials of the banks and various financial institutions simply in order to collect the necessary information.

Issue Management:

Like ordinary issue, the process of issue management is same. It is, however, the duty of the Non-Banking Financial Company to supply a complete set of services and must try to improve and develop the process of marking the issues by which the network of the promoters will be extended.

It is needless to say that the institutions who will take the responsibility to supply the services, must be able to improve the network of the brokers which ultimately brings a success relating to the issue.

If the issues are not subscribed the same may be closed on the earliest closing date. In order to overcome this difficulty, these companies join with others and form a club taking 5 to 10 merchant bankers (those who are authorised) who must take a minimum corpus of funds.

Now, if the issue goes in the hands of the club, there will be, no doubt, hesitation on the part of anyone regarding the investment in the issue having a public support and as such, the issue closes at the earliest closing date which relieves the promoters regarding the issue.

As a result of the above, the merchant bankers and the Non-Banking Financial Companies (NBFCs) will earn a reputation in the market by which they can promote many businesses. NBFC, to some extent will capture and curtail the business that flows to the institutions belonging to the state level.