Pension Fund Regulatory and Development Authority (PFRDA) has come out with a draft circular on Retirement Adviser (RA) in which it has proposed to allow IFAs and corporates to distribute NPS.
PFRDA said, “The role of an advisory entity would be critical in propagating the retirement schemes to the masses in order to achieve adequate social security. This requires penetration at the grass root level. RAs, with adequate knowledge of a prospects needs and means, and knowledge of the pension products, will be in a better position to advise individuals, who have different levels of education, financial literacy, wealth, income potential, capacity to save and financial goals. RAs can play a significant role in helping the prospects/subscribers in deciding retirement plans.”
Eligibility: Any graduate individual or corporate body can become an RA. However, such individuals and corporates will have to obtain a certification on retirement planning from an institute accredited by PFRDA.
However, SEBI registered RIAs and CFP certificate holders are eligible to become RAs without this certification.
Performance guarantee: To become a retirement adviser, an individual will have to make a commitment of giving a minimum business of Rs.10,000. Corporates should commit a business of Rs.1 lakh within first six months of becoming RA.
Fee and structure: IFAs and corporates have to cough up a non-refundable fee of Rs.500 and Rs.5,000 respectively to apply for the license. In addition, IFAs have to pay a registration fee of Rs. 1,000 while corporates have to cough up Rs. 10,000. The license will be valid for three years.
Compliance: Retirement advisers have to appoint a Compliance Officer who will be responsible for monitoring compliance of rules and regulations, notifications, guidelines and the administrative work.
Remuneration: RAs are allowed to charge an onboarding fee of up to Rs.120 for subscriber registration. They can also charge a fee on subsequent services like Rs. 20 for each transaction or Rs.100 annually. These charges have to be recovered directly from investors.
Additionally, RAs can charge consulting fees from clients which should be fair and reasonable.
Currently, NPS is distributed through points of purchase (POPs). POP is an entity that sells pension products to subscribers. These entities act as collection points and extend a number of customer services to NPS subscribers, including requests for withdrawal from NPS. Almost all banks (both private and public sector) and majority of stock broking firms are NPS POPs. The commission to such POS is currently capped at 0.25% of the transactions subject to a minimum of Rs.20 and maximum of Rs.25,000. POP can also charge Rs.100 for initial subscriber registration and Rs.20 for incorporating any change in subscribers account.
PFRDA has exempted advocates and CAs from registering with PFRDA as RAs as such activities are incidental to their practice.