Mutual Funds
Mutual fund industry sees Rs2,826 crore AUM shift in 2009

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.

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COMMENTS

Devendra Mhatre

7 years ago

The change of broker was done mainly by large national distributors and Banks simply to get the trail commissions on amount mobilised by small Independent Financial Advisors under the garb of servicing the investors. This is pure pickpocketing. The income belonged to IFA and not the new broker. This is crime and should be dealt accordingly irrespective of the big names we hear have indulged in this crime. Now that the trail commissions is not paid to the new broker, suddenly there is a lull. so today these chors suddenly do not wish to service the orphaned investors. In fact the trail commissions should not be given to the new brokers even if done prior to the AMFI date of announcement. The trail commissions of approx Rs 22.42 crs (0.5% of Rs 1660 & 2826 crs ) was usurped by the biggies in the garb of servicing the investors. This amount should be taken back from them and returned to the Fund scheme so that the existing investors will benefit.

vivek

7 years ago

SEBI has biasness in his decision and thinks that investor is god and can not do anything wrong and advisor is rouge and who always do things wrong

Duraisamy P

7 years ago

At last why AMFI came to a conclusion it is investor poaching game. Retail investors genuinely need services so that they ned to go to the agents who could rent the services.

Dillip kumar swain

7 years ago

MOTILAL OSWAL IS ALSO IN SAME BOAT .MR JAGDISH TRY TO BE A CONSULTANT NOT TO BE A SERVICE PROVIDER.A SERVANT HAS MANDATE TO PROVIDE SERVICE. NOW U ARE A CONSULTANT, CREATE NEW AUM TO GET TRAIL.MARKET IS VAST.

jagdish manghnani

7 years ago

Dear Sir

I am an lic agent haveing more than 1000 polcies of my own And servicing more than 2000 policies. Haveing more than 100 famlies as my client. Someone of my clients have invested in various mutal funds but are not happy with the services of there advisor . I than did amfi course and got my arn no and starterd geting the investments transfered to my arn no on the hope of geting the trail commision and providing complete servises to all my clients.but this is harsh rule for honest service provider. Amfi should take case by case for transfer of arn no

Regds

Jagdish

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