From October 1, AMCs are to disclose the absolute commission paid to distributors in half-yearly common account statements. This figure will also include all direct monetary payments and other payments made in the form of gifts/rewards, trips, event sponsorships by AMCs to distributors. There is some relief for distributors as SEBI has asked AMCs to mention in the footnote that this figure does not exclude costs incurred by distributors such as service tax, operating costs, etc.
Industry officials say that the a/c statements are expected to hit investors mailbox after October 10.
So how will commission disclosure change the adviser-client relationship? Cafemutual’s recent poll indicates that a majority of distributors (56%) feel that this disclosure would induce pass back from investors, another 29% felt that it would have no impact on their business and the remaining 14% said that it would actually help strengthen client-distributor relationship.
At a recent event held in Mumbai, Leo Puri, MD, UTI MF said that these disclosures are part of the global trend. “There have been a lot of disclosures from AMC side also, including remuneration disclosure, and all this is a global trend. As far as the impact of CAS is concerned, I think that apart from a few days of excitement for the media, I don’t think anybody would remember.”
He suggests distributors should inform their clients about this disclosure by communicating to them about the value they add. “It is possible that there would be some pressure on distributors to respond to questions about their value add. I think the right way to do this to pre-empt. Distributors should take the bull by the horn and engage with their clients proactively. Those who have sophisticated investors have already informed their clients about how the industry works, what value they add and their economics,” suggested Puri.
Some are taking it in their stride. Satish Pandey of Imperial Investment Consultancy says that while it will take some time for distributors to settle down, it may not matter in the long run as long as they remain committed to their business. “We are here for long term so we will adapt to whatever changes regulator brings. In fact, we are in the process registering with SEBI as RIA. There have been a lot of changes in the industry over the last five years but the serious players have sustained and are flourishing,” says Satish Pandey.
Pandey says that while smaller clients may not move to direct after seeing commissions HNIs can ask advisers to justify their commissions.
Sadique Neelgund, Founder of Network FP says that the impact would differ depending on the type of clientele advisers are handling. He says that advisers dealing with HNI clients having large portfolio may face some problem. On the other hand, he believes that clients with less than Rs. 25000 SIP or Rs. 25 lakh portfolio may not question the adviser as long as they are adding value which is beyond transaction facilitation.
G Pradeepkumar, CEO, Union KBC MF seconds his views. “I invest through a distributor and I don’t think serious investors will leave distributors if they are able to generate 2-3% alpha. There will be some noise initially but things will settle down,” says Pradeepkumar.
Distributors say that they will have to spend a lot of time explaining what value they add to their clients. “We do intimate clients about the embedded commissions that we receive from fund houses at the time of on boarding. However, some investors will definitely question us about the commission. I don’t think investors will leave us but there will be some hiccups initially. We are already spending a lot of our productive time in handling operations and this will be another time consuming task for us,” says Belgaum based adviser Anita Kanbargi.
“Investors already know that we receive commissions from AMCs. We will have to wait and watch how investors react. It is too early to conclude whether investors will question us,” says Chennai based adviser A K Narayan.
Some say that the gross commission figures can mislead investors. “The commission figures will look large if it includes all marketing expenses and thus can mislead investors. I think some HNI clients may move 50% of their AUM to direct and keep the remaining with distributor,” says Pune based adviser Amit Bivalkar.
