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.
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
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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-
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.