If an “advisor” tells you, “I’ll not charge any fees but take 20% of your profits,” it can sound fair at first.
Like you’re paying only if you win, right?
But have you ever checked SEBI guidelines on this? In simple terms, ‘Can an investment advisor share profits?’
Let’s break it down clearly with what SEBI rules allow, what they don’t, and what cases show in real life.
Are Investment Advisors Allowed to Do Profit Sharing?
In India, if a registered Profit Sharing Stock Advisory Company pitches profit or account handling, then that is a clear red flag. SEBI’s Investment Adviser framework is not built for profit-sharing deals.
Under SEBI’s Investment Adviser rules, IAs are supposed to charge advisory fees. Not to take a cut of profits and losses.
SEBI has also clarified in the past that RIAs cannot ask for profit-sharing fees.
So if someone says, “Profit sharing is normal,” ask them a straightforward question: “Show me where SEBI allows it.”
Further, an investor or trader must understand that profit-sharing creates a dangerous incentive. The advisor gets rewarded for risk-taking. The client takes the real downside.
SEBI focuses on investor protection and creates a framework around the concept of “suitability.” However, profit-sharing pushes the opposite behavior.
More churn, more leverage, more “recover fast” trades.
Sounds concerning, right?
When a SEBI-Registered Advisor Proposed Profit Sharing
Investors often assume that dealing with an SEBI-registered investment advisor offers a profit-sharing model and automatically guarantees safety.
However, real cases show that registration alone does not eliminate the risk of misconduct. In one such instance, a licensed advisor attracted an investor by offering a “no-loss, profit-sharing” arrangement and showcased short-term gains through a demo.
The advisor then went a step further by directly influencing trades in the investor’s account, a practice that is strictly prohibited under SEBI’s Investment Adviser Regulations.
Profit-sharing models blur the line between advisory and portfolio management and are not allowed for registered investment advisors. When losses occurred, the advisor attempted to justify them as operational mistakes rather than taking responsibility or offering a proper refund.
This left the investor with financial damage and no informal resolution. The case clearly demonstrates how regulatory violations can be disguised as innovative fee structures, especially when investors are unaware of what advisors are legally permitted to do.
The key takeaway is simple: investors must question any advisor who offers profit-sharing, account handling, or guaranteed returns, even if they claim to be SEBI-registered.
How to File a Complaint Against RIA?
If any registered investment advisor offers profit sharing, pause.
Take a step back, and if you have already given access or lost money in profit profit-sharing scam of RIA, then report it immediately by following the steps below:
- Document everything
- File a complaint in SCORES
- Escalate and file for arbitration if no resolution is provided.
Need Help?
Filing a complaint feels challenging, but here is the solution. Register with us, and we will guide you through the process, end-to-end.
- We help you organise evidence such as payment proofs, ledgers, contract notes, call records, chats, and emails so your case is properly documented.
- We draft complaints in the correct formats for SEBI SCORES, NSE, BSE, and SMART ODR, ensuring the issue is explained clearly and factually.
- We also provide filing and escalation support, guiding you step by step and helping you move forward if the matter is not resolved at the first level.
- And if the case reaches conciliation or arbitration in stock market, we assist you in preparing documents and responses so you’re not caught unprepared.
In short, we handle the process and paperwork, so you can focus on protecting and recovering your money.
Conclusion
So, can an investment advisor share in profits? In the SEBI Investment Adviser framework, that’s generally not allowed. SEBI expects transparent, capped fee models—non-profit cuts tied to risky behavior.
If someone, even if outside SEBI regulation, pitches profit sharing, treat it as a warning sign.
Stay away from such schemes and protect yourself from financial and mental distress.
