AMFI asks for a new vote on trail commission issue by email

The day after Moneylife exposed how the Association of Mutual Funds in India (AMFI) was dilly-dallying for over five months on whether trail commission would continue to be paid to the old distributor even after a customer has walked away, the fund lobby has decided to ask for a new vote on the issue. All chiefs of asset management companies got an email on Tuesday afternoon asking them to vote on three questions—whether the trail commission of a departing customer: a. should be paid to the old distributor; b. should be paid to the new distributor; c: should not be paid at all. Funds are supposed to vote a simple yes/no to each of the three questions.

It may be recalled that yesterday we had reported on the fact that there is continuing confusion about who gets the trail commission in a mutual fund transaction, where a client has moved away from one distributor to another. The confusion persists to this day, due to the inability of the fund lobby, AMFI, to implement the decision, by vote of hand, of its own members not to pay trail commission to the old distributor.

About five months ago, AMFI formed a committee with representatives from ICICI Prudential and Birla Sun Life to decide on who should be getting the trail commission. The committee argued that that the original trail should be there for life even if the client has shifted. There were major objections to this idea. In principle, trail commission is paid for maintenance of an account, not for acquisition. For acquisition of clients, fund companies were paying upfront commissions. If a distributor was not maintaining the account, there was no reason for him to get paid anymore.

The decision was debated and put to a hand of vote. It appeared that 11 funds voted in favour of the committee’s flawed decision while 17 were against. However, till date, this has not been implemented. Later, there was a lot of pressure on CEOs who voted for trail commission termination, to take back their vote.

Today’s email asks the funds to vote again on the idea. When Moneylife asked one of the CEOs why should AMFI ask its members to vote again on something that was roundly defeated, one of the CEOs replied, “It’s all a farce. I am not sure what AMFI wants to achieve and whether it will be implemented this time.” What is also a mystery is why are some funds so keen to keep paying commissions to the old distributor, which not only seems illogical but patently anti-investor. It is the investors’ money that is being paid out and it’s unjust to pay his money to a distributor he has decided to walk away from. However, this is precisely what some large funds are supporting

Comments
Bansal NC
1 decade ago
keep paying commissions to the old distributor
RUPESH
2 decades ago
DEAR VIEWERS,
MUTUAL FUND BUSINESS HAS BECOME A HORSE TRADING BUSINESS JUST LIKE OUR PARLIAMENTARIANS R BEING SOLD IN BHED BAZAR OUTSIDE OF PARLIAMENT HOUSE-NOW IT IS ISSUE OF TRAIL COMMISSION-PLEASE NOTE-GIVING TRAIL COMMISSION OT NEW DISTRIBUTOR WILL JUST BENIFIT THOSE DISTRIBUTORS WHO CAN OFFER CASH INCENTIVES TO INVESTORS-IT IS JUST STARTING A NEW BRIBE SYSTEM-TO EARN FROM AUM-IS SEBI AWARE OF ALL THESE GROUND REALITIES? I GUESS SEBI OFFICIALS ARE TOO MUCH IDLE THESE DAYS-THATS Y THEY R MAKING NEW ''FATWAS'' EVERY DAY REGARDING MUTUAL FUND INDSUTRY-AS IF MUTUAL FUND INDUSTRY IS THE ONLY MATTER OF GREAT GREAT GREAT IMPORTANCE-WHY SEBI CANNOT ASK IRDA TO ACT ON FULL REMOVAL OF COMMISSION FROM INSURANCE?WHY SEBI CANT ASK REMOVAL OF COMMISSION PAID ON POST OFFICE SAVINGS? IT IS JUST DIRTY MINDS SITTING IN SEBI WHO ARE ONCY TRYING TO HARRASS POOR IFA'S WHO ARE NOT UNITED TO MAKE A SINGLE VOICE AGAINST ALL THSES ''FATWAS'' IT SEEMS IF IFA'S DONT UNITE-THEY WILL DIE ALONG WITH THEIR KIDS IN HUNGER-
raj
2 decades ago
Dont expect any constructive action from AMFI in any matter . The association itself is farce. Look at what they did when SEBI took decision to abolish entry load. where was AMFI that time.Pleas e note there is no representative from MF Industry. you have to stay with what SEBI does. AMFI doesnt have guts to fight for industry. or else look at the brokers. how they are fighting against increase in timing
Bharatkumar J Patel,ahmedabad
2 decades ago
I have strong objection to paying trial commission to new agent, one of the leading mutual fund distributor of guajrat got signed asset transfer letter under the disguise of changing bankdetails.when i contacted investr, he told me that he has not signed such paper for change of broker.lot of malpractice going on and it will make smaller agent vanish from the business if this continues.
S.K.Bagaria
2 decades ago
I fail to understand the requirement of debate even on this issue. It need not be made an issue. Trail does not relates to the sale/deployment of fund but is revenue for servicing and maintaining the fund. Once the new advisor has entered , the responsibility of servicing and maintaining lies on him. he only need to be rewarded for that. Where the question of debate even?
v venkat
2 decades ago
Idea of paying trail fees to new broker may be good but big mutual fund brokers like Prudent corporate advisory of surat,gujarat are pouching our big investor by offering inducement of trail,
Uday Dhoot
2 decades ago
Totally agree with the view of the author here. Insurance companies started this wrong payment structure of trail to advisor, although most of the time the advisor vanishes after selling the insurance policy. Now mutual funds also want to go that way.

No doubt bigger guys just want to remain bigger even without doing any value add. I think not only in MF but in insurance also there should be a option to change the advisor.
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