The number of AUM transfer requests jumped 45% from 83,233 requests in 2009 to 1,20,628 between January-March 2010
The growing cases of distributor change requests have leaped manifold after market regulator Securities and Exchange Board of India (SEBI) discontinued the requirement of no-objection certificates (NOCs) from investors if they wished to change their distributor. According to a Boston Consulting Group (BCG) & Computer Age Management Services (CAMS) report, the number of distributor change requests recorded at the registrar and transfer agents (RTAs) was as high as 1,20,628 with Rs1,660 crore of Assets Under Management (AUM) mobilised among the distribution channel between January-March 2010. In 2003, the industry witnessed just 122 distributor change requests with Rs28 crore of AUM changing hands. The sharp increase in such requests was witnessed since 2008 when 33,174 distributor change cases worth Rs1,168 crore were recorded, which increased to a whopping 83,233 requests worth Rs2,826 crore in 2009, a jump of 151%.
Moneylife had first reported on the AUM transfer practise. Read here: (http://www.moneylife.in/article/8/3509.html).
If an investor mobilised his assets from distributor 'A' to distributor 'B', the investments are recorded in the Association of Mutual Funds in India (AMFI) registration number (ARN) of distributor 'B'. Subsequently the trail was also passed on to the new distributor. Last year, the market regulator had clarified that the NOC was not required if investors wished to change their distributors. This came as a breather for investors who had struggled to obtain the NOC from their original distributors.
The study shows that regional distributors have gained the maximum share of AUM in January-March 2010 while the small Independent Financial Advisors (IFAs) have lost a major chunk of the pie.
On 7 May 2010, industry body AMFI had sent a circular to all fund houses asking them to stop paying trail commission in the event of a broker change to curb unethical AUM shifts. This was done to stop the investor-poaching game by a few national distributors.
Before sending this circular, AMFI had sent warning notices to HDFC Bank, HSBC Bank, Kotak Mahindra Bank and NJ India Invest to stop this practice. These numbers may also include cases where investors were made to change their distributors under some pretext as well as at the behest of the investor. The whole intention behind such huge transfer requests was the lure of trail commission.