In line with mutual funds, SEBI is likely to ban upfront commission in PMS and AIFs and may ask the industry to implement all trail model for their distributors, suggests a media report.
Currently, PMS/AIF distributors get commission of 40-60% of management fee depending on the product, tenure and lock in. Typically, the commissions offered by AIFs are comparatively better than other market linked financial products.
While two members of SEBI Alternative Investment Policy Advisory Committee (AIPAC) confirmed that such a proposal has not come to the board, they said that the market regulator could implement all trail model in PMS and AIF industry to do away with the commission arbitrage existing between MF and PMS/AIFs.
A senior official requesting anonymity said that implementation of all trail model in the PMS/AIF industry is a big positive. He said, “Though there could be short-term pain, the industry would benefit in the medium to long term. Trail commission ensures that the interest of manufacturer, distributors and investors are aligned.”
Jay Shah, Co-Founder of Onetreehill.in, a wealth management firm feels that the move will reduce mis-selling. He said, “Upfront commission increases instances of mis-selling. We have seen this in the mutual fund industry where most distributors used to sell closed-end funds. An all trail structure will address these issues. For me, upfronting, initial set-up fees, zero hurdle fees are just tools to increase bonuses. In future, I would like to see the industry moving from fixed fee to performance linked fees.”
However, a few experts have a different view. Devenjit Singh, Managing Partner, Xponentia Capital Partners points out that AIFs/PMSs are for seasoned investors. “I don’t think wealthy investors need protection from the regulator. There is no mis-selling in the AIF industry as only evolved and seasoned investors invest in AIFs.”
He, however, said that since the industry has been growing, the market regulator wants to ensure checks and balances so that the industry grows in a sustainable manner.
While the AIFs witnessed an impressive growth of 71% in their assets under management last fiscal by raising commitment of Rs.2.82 lakh crore as on March 2019, the assets under management of PMS were Rs. 4.33 lakh in January 2019 excluding EPFO and PF contributions.