Templeton MF insists on clearance certificate for trail commission

Templeton MF is insisting on a ‘clearance certificate’ from the previous distributor in order to pay trail commission to the new distributor

After the Securities and Exchange Board of India (SEBI)’s circular on payment of trail commissions, asset management companies (AMCs) are trying to play safe by insisting on a no-objection certificate (NOC) in case of a change of distributor. The mutual fund (MF) industry is still undecided on whether to pay the trail commission to the new distributor or the old one as the poaching game unfolds.

Moneylife has a document sent by Templeton to independent financial advisors (IFAs), which reads: “The payments of trail commission on assets that are transferred from another distributor to your ARN code shall be subject to us receiving a ‘Clearance Certificate’ from the previous distributor. In case any Assets under your ARN Code are transferred to another distributor at the request of the investor, you shall not be entitled to receive any trail commission on such assets.”

Therefore, Templeton is still insisting on receiving a clearance certificate from the old distributor in order to pay out trail commission.

The Association of Mutual Funds in India (AMFI) had instructed all asset management companies (AMCs) in its circular issued in September 2007 that investors can switch to a new distributor without obtaining an NOC from the existing distributor. However, most AMCs continued to demand an NOC from harried investors. Due to such inconsistent practises, SEBI stepped in to reiterate that all AMCs have to comply with the AMFI circular dated 5 September 2007 and not to insist on an NOC.

The whole issue stems from the growing business of assets under management (AUM) transfer. After the circulars from AMFI and SEBI on payment of trail commission, the AUM snatching game has begun to gain traction. According to industry sources, HDFC MF and UTI MF are not happy to pay trail commission to the new distributor though they have not come out with a formal announcement. Even AMFI took almost two years to implement its own decision on trail commission.

“Most of the AMCs are not insisting on an NOC especially after the SEBI circular,” said an IFA.

“The SEBI circular doesn’t say anything specific about the payment of trail commission. If an investor gives a letter that he wants to change his distributor, then the AMC should not ask for an NOC from the old broker. AMFI has said that an AMC may pay the brokerage to the new distributor subject to rules,” said other IFA.

Harshendu Bindal, president, Franklin Templeton Investments (India), said, “We have been processing all investor requests for a change in distributor without insisting on an NOC from the existing distributor, even before the SEBI circular, as part of AMFI best practices. Our understanding is that the SEBI guidelines are regarding the change of distributor code based on investor request and don’t pertain to payment of trail commission.” 
“If the request for change of broker also asks for transfer of trail commission to the new broker we will change the broker code. However, given our contractual obligations with the distributors, we would ask for a consent letter from the old distributor for transferring the trail commission on historical assets. Irrespective of the type of request, we would accept a valid instruction from the investor for changing his broker code,” Mr Bindal added.

“I am not in favour of something which could prevent an investor from shifting to a new distributor. There are some malpractices in the industry where people are poaching on trail (commission). When an investor himself wants to be serviced through a distributor it is necessary that he compensates him indirectly,” said a chartered financial analyst.

“There is still some ambiguity in this case. Some AMCs have taken a stand that they will continue to pay the trail commission to the old distributor,” he added.

Small investors are nowhere involved with a say on trail commission as it is decided by the AMC and the agent. But industry sources say that some high net-worth individuals are beginning to bargain for a percentage of the trail commission from distributors. Whether an investor would easily get a clearance letter from the old distributor is another issue.



Vipul T Hindocha

7 years ago

The best thing would be that the "Trail" be paid to the "New Distributor". One must look into the fact as to why is the investor changing his Agent. It is a known fact that the employee turover in the big distribution Companies and Banks are high and it so happens that when the employee leaves the local Branch / Company the investors are left high and dry. It is this Big cats that are crying foul on the Trail issue.The trail is not such a big amount where the Agent could pass on benifits to the investors and there are checks in place which can prevent such payouts - The AMC have to be vigilent and not hesitate to cancel the registration of such Agents who are in the game of "passing of incentives"


7 years ago

If somebody invested previously as "DIRECT" investment in Templeton Mutual Fund & now want to introduce a Broker will that new broker eligible for trail? Hope this case is not under any NOC ambiguity.

Sudarshan Kumar Suri

7 years ago

I have experienced greedy & unethical distr's switch my HNI's entire portfolio to their advatage despite the fact that i had provided excellent services & earned crores for my clients. i strongly feel that if a client is unhappy with his existing distr, he should redeem & open a new pfolio/ a/c. Till that happens, NOC from the previous distr should be a must before the trail comm is switched to such unscruplous new distr.

chetan bhatia

7 years ago

Two Important things here:-

First of all, if the customer has given a NOC he is clear about the call he is making, (I here assume that 90% of the transfer is happening from National/Regional distributors(ND/RD) to IFA's since the earlier comes to clients only for the new Business or are running a commodity business, hope SEBI is reading this column).

So it's the new Distributor(IFA), who actually takes care of the clients needs (in most of the cases atleast % wise they are much better), but has very little say (with the AMC's SEBI, AMFI) suffers in the whole process - since they serve the client with the expectation that at least they shall get some new business some day which shall get him some income & maybe trail also comes on the transferred assets.

An IFA in the new scenario is either out of business or up's his service with/without a fee, since maybe 5-10% actually charge a fee. Here neither of the 3( AMC's SEBI, AMFI) has taken any effort to train the individual.(However some AMC's have always been proactive on this front).

A check - a Grading system of the servicing standard of the Distributor whether a IFA, ND or RD could be the answer. If at all SEBI is serious about the Investor it has a very important role to play. Atleast to start with the ND & RD, based on the previous record, slowly the IFA can also be included in the process. So that the Investor takes a informed call to start with.

However coming back to our subject, here some of the AMC's maybe adamant for the letter, since which AMC wants to come in the bad books of the National/Regional Distributors, who today bring in the max. business.

Secondly (maybe) some of the AMC's under this guise are pocketing the trail by paying trail to neither.

Bheema rao.K

7 years ago

Mear changing the ARN code with out paying the trail fee is of no use for the new distributor.as no body wants to service the customer with out any benifit .
When the old distributor is not giving good service,why he should continue to get the trail fee?

Hemang Shah

7 years ago



7 years ago

Many a times it is being seen that Private Banks and NDs who randomly sell to Retail clients predominantly NFOs do not take ownership of the business sourced. Any IFA who begin servicing those clients are not been rewarded properly if the previous practice of NOC from old distributor prevails neither the clients are ready to pay additionally as service charges for such orphan folios/ investments


7 years ago

Stope the payment of trail commission then you will find the real professional. Now some distributors only target to switch the others AUM and get trail. I reguest regulator to stope trail comission payment.

Manoranjan Acharya

7 years ago

Those Amcs are demanding noc from old distributors they are ethical and correct.Some distribution house appoint staff for marketing of switch the aum of IFAs.They are only for trail commission purpose.They will not give any services to the investors.It is not good for the mf industries.so every amc should demand for noc .

Manoj Chaturvedi

7 years ago

Change of distributor could be allowed with the consent of investor but trail comission to the new distributor should only be allowed after noc from old distributor.

R Balakrishnan

7 years ago

HNI's and Corporate investors have always taken and continue to take a big bite out of distributor commission. So long as an individual can take money for himself in any transaction, he will. That is why rebating should not have been banned in the first place. The distributor owned amc's are responsible for this.


7 years ago

The best solution seems to me is that distributor change should be done on request of customer without NOC of old distributor but WITHOUT TRAIL FEES,the trail fees should be paid to NEW distributor only in case if customer obtains and submits a ARN stamped NOC from old sitributor.this is simple amicable solution which can serve a middle path for both sides.

IOC may induct equity partners in Paradip refinery

IOC is looking at equity partnership with companies like Saudi Aramco and Kuwait Petroleum, who can supply crude oil to the Paradip refinery project in Orissa which has an annual capacity of 15 million tonnes

State-owned Indian Oil Corp (IOC) on Wednesday said that it is looking at equity partnership with companies like Saudi Aramco and Kuwait Petroleum for its Rs29,777-crore Paradip refinery project in Orissa, reports PTI.

"Thinking (of inducting equity partners) is on. We are thinking of offering equity to someone who can bring synergy to the project," IOC chairman BM Bansal told reporters in New Delhi.

IOC is looking at companies which can supply crude oil to the 15 million tonnes a year refinery that is scheduled to be completed by March 2012.

Companies like Saudi Aramco, the world's largest crude oil producer, and Kuwait Petroleum Corp may fit into the scheme as oil suppliers to the project.

"So far, discussions have not taken place with anyone but we will like to begin them soon," he said. "Strategically, we wanted to offer equity (closer to project completion) at a premium, but if financial problems persist we will have to advance it," Mr Bansal added.

IOC wants someone who can commit long-term crude supply as equity partner. "But so far nothing concrete has happened," he said.

IOC had last year signed a loan agreement with a consortium of lenders led by State Bank of India for term loan of Rs14,900 crore for the project.

Mr Bansal said IOC is targeting commissioning of the refinery in the first quarter of 2012. The company had some time back split the refinery-cum-petrochemical complex into two, deciding to complete the refinery first and follow with the chemical unit.

The Paradip refinery is being configured to process the toughest, heaviest and the dirtiest crudes which are cheaper than the cleaner and easier varieties.

The refinery will have a Nelson Complexity Index of 15.



rajendadra pras

7 years ago

i am pilling contractor

Ranbaxy fails to get FDA nod, misses exclusive rights

The pharmaceutical company has failed to get the US FDA’s approval for launching the generic version of Flomax, thereby missing the opportunity to launch the drug in America with exclusive marketing rights

Pharmaceutical company Ranbaxy Laboratories Ltd, a unit of Japan's Daiichi Sankyo Co, on Wednesday said that it has failed to get the US health regulator's nod for launching a generic version of Flomax, a prostrate drug, thereby missing the opportunity to launch the drug in America with exclusive marketing rights, reports PTI.

Flomax is a patent medicine from Japanese drug maker Astella Pharma's portfolio and the drug is also known by its generic name—Tamsulosin hydrochloride.

"We regret that, despite our best efforts, we were not able to get an approval for the product (Flomax), and hence will not be in a position to launch the product," a Ranbaxy spokesperson said.

Earlier in 2007, Ranbaxy Laboratories had signed an agreement with Astellas and Boehringer Ingelheim for ending the patent litigation regarding Flomax drug in US courts.

Under the terms of the agreement, Ranbaxy was supposed to enter the US market on 2 March 2010, eight weeks prior to expiration of the paediatric exclusivity.

During the period of paediatric exclusivity, Ranbaxy would have been the only generic manufacturer to commercialise this product in the US market.

However, the Gurgaon-based company has failed to get the approval from the US Food and Drug Administration (FDA), which is mandatory before launching the drug in the American market. Thus, the company missed an opportunity to launch the drug in the US market with exclusivity.

The total annual sales of Flomax are estimated to be $1.20 billion in the US.


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