Now that trail commission has started going to new distributors, banks and large distributors are scrapping over acquiring clients, which would soon land fund companies in a big mess
The dust has not yet settled on the trail commission issue and already fund distributors are gunning for each other to snatch clients.
In late December, the Securities and Exchange Board of India (SEBI) directed the Association of Mutual Funds in India (AMFI) to implement its own earlier decision that said that funds should pay trail commission to new distributors when the client has moved away from one distributor to another. Barely a month has passed and there is a new major issue as a consequence of the new rule. Since clients are now for the picking, it appears that some banks and fund distributors are aggressively wooing customers of other distributors in a bid to ensure commissions end up in their wallets.
An independent financial advisor (IFA), who spoke to Moneylife on the condition of anonymity, said that some entities are literally running an asset-under-management (AUM) transfer business. “HDFC Bank, NJ IndiaInvest and Prudent Corporate Advisory Services are running an AUM transfer business for the past one month. For instance, HDFC Bank pays 100 basis points (bps) as commission if a relationship manager gets new business. But if the manager captures the business of another, then he gets 150 bps. Clearly, the bank is encouraging its managers to capture existing AUMs rather than generating new ones. Prudent and NJ India have a team dedicated to transfer AUMs.”
The source also said that shifting to a new distributor will create a huge mess for the asset management companies (AMCs) and lead to fights between fund distributors. “The AMC will have to pay unnecessary registration charges. Plus, there will be a lot of back-office work. They will not benefit from it at all. This is not expansion of new business but snatching of each other’s business. It will only create a fight among us,” says the source.
The IFA also revealed that Templeton has an agreement with its distributor that it will continue to pay trail commission to the agent who first procured the business. It has a clause that says “trail commission shall be paid to the agent who has procured the application and put his rubber stamp.” How this squares with the new rule of paying commission to the new distributor is not clear.
The IFA is of the opinion that this stand should be taken by most of the AMCs but that they are afraid to speak anything against SEBI. “The bigger agents will capture smaller agents’ AUM and in turn will have a bargaining power with AMCs,” he added.
The confusion over trail commission has only been furthered by AMFI’s foot-dragging on the issue, instead of having an open debate on the issue. Moneylife had written earlier about how larger fund houses with vested interests and AMFI have been making last-ditch efforts to preserve the status quo. (see here, here and here). The friction, frustration and mess caused by client-snatching will again lead to a rethinking on the issue of trail commission. This time, it could well be that the trail commission does not go to anyone when a client shifts. AMFI, as the industry mouthpiece, should lead the debate. However, for that, a change at the top is essential.
Max New York Life Insurance plans a capital investment of around Rs150-Rs200 crore during this quarter
Private insurer Max New York Life said on Tuesday that it plans a capital investment of around Rs200 crore by March this year to meet growth plans, reports PTI.
"Depending on growth, we do expect capital infusion of around Rs150-Rs200 crore during this quarter," Max New York Life Insurance's chief executive officer and managing director Rajesh Sud said at the launch of its child nurture programme ‘I-Genius’.
During the current fiscal, the company has made a small capital investment of about Rs2 crore, he said, adding that the paid-up capital stands at Rs1,784 crore.
Asked about the business outlook, Mr Sud said that it is picking up and the industry is expected to witness a growth of 15%-20% in the next fiscal.
Max New York Life expects better-than-average industry growth, he said, adding that the company has collected Rs1,365.79 crore in the first nine months of the current fiscal.
The company, that commenced operations in 2001, expects to break even by 2011, he said. It has 715 offices across the country.
Talking about the child campaign, Mr Sud said that the programme intends to support talent development of children by identifying and rewarding those who display all-round skills, he said.