Trail commission: AMFI ignores internal verdict

The fund lobby continues with its anti-investor stance and its latest move only serves to highlight its ineptitude

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. A large part of the blame for this confusion must lie with the fund industry, especially the Association of Mutual Funds in India (AMFI). It is a shocking story of ineptitude and anti-investor stance of the fund lobby.

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 huge objections to this obviously flawed idea. The simple principle was that the trail commission was being paid for maintenance of an account, not acquisition of clients. For acquisition of clients, fund companies were paying upfront commissions anyway. If a distributor was not maintaining the account, why would the fund company pay him for ever? “It is a matter of principle and it is the client’s money. We have no right to direct it wrongly,” argues the chief executive officer (CEO) of a mid-sized fund company.

The decision was put to a hand of vote. According to one of the CEOs, 11 funds voted in favour of the committee’s flawed decision while 17 were against. “Amazingly, till date, it has not been implemented. For any other decision, we get the AMFI circular the very next day. But on this, five months later, we have no clarity.” Indeed, quite shockingly, a few of the CEOs who voted against trail commission continuing, got calls from top AMFI officials asking them whether they had really thought through the implication of changing the trail decision. “If you want to take your vote back, please write to me,” was an open hint.

Since the voting of trail commission turned out to be such a farce, one of the CEOs commented “when voting has no meaning why vote”, when the issue of fund trading platform came up for discussion and voting.

While the regulator, the Securities and Exchange Board of India has scrapped the need to get a ‘No Objection Certificate’ to change distributors, it has to now step in and give a clear directive to AMFI since AMFI will suppress what its own members have decided.

This is of course one more example of the way AMFI functions. There are no elections for the posts of office-bearers, and the head of AMFI, AP Kurian, apparently gets paid a hefty salary. Over the past decade, SEBI has had four chairmen and the Insurance Regulatory and Development Authority has had three. But the AMFI chief continues to rule unelected and unhindered. Even the board of directors of AMFI does not change. Naval Bir Kumar resigned from the board a year ago but there has not been a replacement. About six years back, the CEO of Birla Sun Life took the signatures from some 20 funds to ask for a change.  

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    COMMENTS

    Vivek Rege

    1 decade ago

    I marked a mail to SEBI directly on 9th December explaining them the need to get rid of the NOC required from a distributor and let the distributor compete on Quality Advice and the fact that the spirit of the Regulations are not to sheild a distributor for poor show . Moreover Trail Commission be paid to the New Distributor since that is the spirit of the investors decision , also receving Trail will help subsidise the Investor on fees which are now charged for the value added services rendered . If Trail is not paid to the new distributor in which case the wrong person is being compensated , the investor needs to pay higher fees since the same cannot be subsidised hence once again the investor bears the brunt , which in my opinion any investor would want his fees subsidised when he knows that the advisor is being paid through trail hence he can afford to charge lower there is no magic here . The need to mail to SEBI directly has arisen from the fact that there are no proper reliable channels before going to the regulator directly which if it was there i would have opted for the same. I hope SEBI gives guidance on this front as well in the broader interest of the investor and to promote advisory services which was the intent of the new regulations , hence condusive regulations are required .

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