MF News No more upfront commission from now: Industry shifts to all trail model

No more upfront commission from now: Industry shifts to all trail model

However, SEBI has allowed upfronting of trail commission if a first time investor starts an SIP of up to Rs.5000.

Nishant Patnaik Oct 23, 2018

SEBI has banned upfront commission in mutual funds with immediate effect. In fact, the market regulator has directed fund houses to follow all-trail model to compensate their distributors.

In line with its earlier proposals, the market regulator has clarified that fund houses will have to pay such commissions from scheme and not from AMC book. In addition, SEBI has asked fund houses not to do upfronting of any trail commission.

However, fund houses can do upfronting of trail commission on SIPs subject to fulfilment of pre-defined conditions.

Here are the criteria

Upfronting of trail commission is allowed only for first time investor based on Pan
Fund houses can pay 1% upfronting on SIP of up to Rs.5000 for a maximum period of 3 years For instance, if a first time investor starts SIP of Rs.5000 for three years, distributors will get close to Rs.1800 as upfronting of trail commission
Fund houses can claw back such a commission on a pro-rata basis from distributors if investors discontinue SIP for which the commission is paid
SEBI will take appropriate action if it finds irregularity in this practice

Swarup Mohanty, CEO, Mirae Asset believes that upfronting of trail commission does not make sense for distributors. “We do not encourage upfronting of trail commission. It is better to stick to all trail model as distributors get commission on mark to market basis. If a fund does well, distributors will get healthy commission compared to what he gets through upfronting of trail commission.”

Srikanth Meenakshi, COO, FundsIndia too believes that upfronting of trial commission will hardly encourage any distributors to sell mutual funds. “A commission of Rs.50 on Rs.5000 SIP may not benefit distributors in any way.”

SEBI further clarified that fund houses can continue to hold and provide training sessions to their distributors. However, fund houses cannot reward or give non-cash incentives to their distributors.

In addition, fund houses can incentivize B 30 distributors with additional incentives but only through trail commission.

SEBI believes that shifting to all trail model can bring transparency in expenses, reduce portfolio churning and reduce mis-selling in mutual funds.

There is no mention on the rationalization of TER structure. This indicates that the market regulator may give some more time to the industry to reduce expenses.

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39 Comments

Ridip Bora · 5 years ago `

Really don't see any reason for distributor to sell mutual fund and waste time and energy for almost no money.

Byju v g · 5 years ago

Yes

SANJAY BARAD · 5 years ago

WHY SEBI ONLY REDUCE MUTUAL FUND COMMISSION BECAUSA OF WE ARE NOT OPOSE STRONGLY, IRDA IS NEVER REDUCE LIC AGENT COMMISSION. IF WE WANT TO SELL WE ALL ARE STRONGLY FRIGHT WITH SEBI AND ALL AMC

GOWRISHANKAR · 5 years ago

Hi all,
As Mr Vijay has pointed out there are many faces to this dangerous move by the so-called regulator SEBI. (Serving Bureaucrats & Industrialists). Being a retired bank officer myself, I know very well as to how many Officers in the Executive Cadre know the definition of AMFI/SEBI/AMC & Mutual Funds. Let alone TER, SHARPE RATIO, STANDARD DEVIAITON etc., Most of the selling is done by guys whose services are outsourced by the banks - more so by the Private Banks. They target all the account holders and their job is to reach the target of selling any kind of SIP irrespective of whether the scheme is suitable to the account holder or not. It is a fact that the Interest income of banks have drastically come down - thanks to the political interference in the working of banks. The only way to shore up the Balance Sheets of PSU banks is to do some kind of CROSS SELLING. It could be Life Insurance, General Insurance, Demat A/cs, or even Mutual Funds. As far as possible, the revenue from these verticals are a major cause of concern for the Top Management as they are not able to recover Bad Loans from guys like Vijay Mallya and Videocon Industries (Kochar). SEBI is in the least interested in the welfare of those Distributors whose survival is dependent upon MFs and Insurance. The Government and SEBI will not touch the insurance industry for the simple reason that when a particular Public Sector entity like IDBI Bank or ILFS becomes sick the easiest way to shore up the Balance Sheet of such sick companies is to milk the LIC which is the Kamadhenu for our Government. Why will they reduce the commissions of mobilising insurance premia? The SEBI Chairman should be asked to market atleast ONE SIP per month on his own to make him understand the difficulty of marketing MFs. There is no other way. God Bless the Agents and the SEBI CHAIRMAN.

Vijay katkar · 5 years ago `

Seems sebi want to save bank FDs ....Otherwise NPA problem destroy banking system

Sinha u · 5 years ago `

Ifa fraternity is dead and Sebi has nailed the final blow by withdrawing upfront. Clear mssg so buss in 10-15p or kick out of mf Distribution. It's a pity Ifa fraternity is so weak n handicapped Mr Dhruv mehta is sleeping Sweet Dreams.....

SHAILENDRA BARANWAL · 5 years ago `

This step will make new entrants to think twice before getting into mf distribution..People who are already associated with this business will have to look for other source of income to meet there basic needs.

Alagappan · 5 years ago `

I think the industry is not thinking way forward this is the same thing which the industry was thinking when entry load was banned and amc found a way to pay now the real people who r interested in the client will never think what his income is it is a win win situation, only time will tell let us wait, the industry is seeing many distributors from many banks / nd etc starting with a huge aum from beginning of their new career, in today’s scenario it is wait and watch the mf industry needs fresh inflow then only they will get salary, bonus etc they will find a new way out,

Ajay Chaudhary · 5 years ago `

Prashant · 5 years ago

They don't want the current and established distributors to remain than why would they want a new entrant? AMCs are now confident that they will get the aum they want without us so through SEBI they are doing this.

RAHULL · 5 years ago `

Have loss in MF industry, distributors are only the person who educated the client and stay invest in MF, if distributor have many operating cost for thair business, if distributors have heavy aum he has heavy operating costs for their clients service

Vishal Malhotra · 5 years ago `

Do not get disheartened as of now. Too early to jump on the bandwagon. Few ways could be to look at it are Empanel yourself with new upcoming & good AMCs, start doing STPs and SIPs. Last but not the least do some diversification in your profession, change your business model a bit, do some "Multitasking" if possible in Financial Investment field. Best Of Luck. May God Bless Good Mutual Fund Distributors.

James Bond · 5 years ago `

Soon,
there will be "No Commission" structure & TER will be less than 50bps.
This will also show that the concept of perpetual trail was a big lie on distributors

rajesh kumar · 5 years ago `

Do not get dishearten.. This too shall pass.. Start Selling Multiple products.. Sell L.I as govt/IRDA loves it and they will not decrease commission.

Praveen Sharma · 5 years ago `

This is the first time I see regulators working to benefit only the large or corporate distributors. I am sure they have personal stake in the online platforms. Why else would they want to kill the retail MF distribution?? I joined this MF distribution in March. Need to now find another business.

Also why Insurance Industry isn't touched as yet despite them giving as high as 70% payouts??

Wow SEBI !!! You really got brains ???

Pawan Khurana · 5 years ago `

One more step of IRADICATION of IFA from MUTUAL FUND INDUSTRY.

Krishna Gopal Gupta · 5 years ago `

It is indeed very sad to all IFAs that SEBI is acting in an unwarranted way in the name of REGULATOR misusing their authority.

1. First they are asking to stop brokerage for non-KYC compliant investors without any additional remuneration in spite of the fact that they had complied then existing rules. However, AMCs want physical documents though the client had submitted to CAMS for no fault of the client. It is digital age and they need each document in physical form only. FRANKLIN TEMPLETON is one such example.

2. Then SEBI had asked to reduce TER on all the schemes. Even if AMCs wish to pay from their own earnings or in non-cash way, SEBI has objection to it for nothing?

3. Now, they are banning all upfront as Mr Bhave did several years ago. This would definitely impact the MF business in future.

4. It seems that SEBI is promoting BANKS and killing all individual IFAs intentionally with a planning.

Pranab · 5 years ago

I assure u all this SEBI will b bigger fraudster than Bhave..We all know what was final fate of Behave after his term end..This person & his so called inefficient team will end in worse fate as he have real curse of small distributors...Can he & his team work without salary..They,along with all AMC employee draw nifty salary,perks & employees...Will AMC reduce salary of their employees.. What there contributions & what they r without distributors.this need serious thinking...

Dinesh · 5 years ago `

Sebi members get inflated salaries and perks.They have no concern for retail distributors.They are here to wipe out the distributor community.

Bajrangi Chaubey · 5 years ago `

I think the person responsible for upfront cut shuld be advised to resign from his post and accept the challenge of being a mutual funds distributor to make him learn how we earn our bread.?

Jagadeesh Kulkarni · 5 years ago `

Really don't see any reason for distributor to sell mutual fund and waste time and energy for almost no money.
Presently Insurance company handled IRDA provide commission 5 to 35 percent along with renewal commission, this is best way to earning..

rajendra k tarte · 5 years ago `

SEBI wants to cut earning of distributor to stop miss selling, actually mis selling is done and still continue through other than IFA banks and other organsation is making misselling than why they are not stopping banks to sell other products than their core business of banking. I think if they wants to stop misselling than why no actions has taken on them

Monilkumar · 5 years ago `

See the differance of IRDA & SEBI.
ONLY MF DISTRIBUTORS commision reduces day by day.but not insurance agents.
All indian people including political leaders improved their earnings bcoz of inflation every year,but SEBI never favoured MF AGENTS TO INCREASE COMMISION.
WHY?? WE ALSO IMPACT BY INFLATION.
IF SEBI DNT ALLOW UOFRONTING THAN INCREASE TRAIL .

JAI YOGI CAPITAL SERVICES · 5 years ago `

SEBI SUPPOSED TO INCREASE TRAIL COMMISSION.

Akanksha Pandey · 5 years ago `

???? ?? ?? ??? ??? ????????? ??, ?? ?? ?????????? ?????? ??? 5%-35% ?? ????? ??, ???? ?? ?????? ??? ?? ???? ?? ?? ?? ???????? ?????????? ????? ?? ?? ?? ?? ?????????? ?? ???????? ???, ????? ????? ??? ???? ???? ????? ?? ???????? ??? ?? ?????? ?? ?? ???? ?? ??? ?????? ?? ?? ?????? ??????, ???? ?????????? ???? ??? ????? ???? ??? ???? ??? 1% ?? ?? ?? ??????
?? ??? ?? ???? ????? ???? ??? ??, ???? ????? ???? ????? ??? ?? ???? ???? ?? ???? ???????? ???? ?? ??????
??? ?? ?????? ????????? ???

Akanksha Pandey · 5 years ago `

Insurance = Wine =5%-35% commission
Mutual fund =Milk=>1% commission
What are the regulater thinking, they want people buy wine and agent sell policy, not milk like mutual funds

R C Gupta · 5 years ago `

????? ??? ????....???? ??????? ?? ?????? ??.....?? ??? ??????? ?? ?????? ????? ???....?? ??? ??? ?? ????? ?????????????? ?? ???....?? ??? ? ??? ?? ?? ?????? ?? ????????? ????? ???? ????.....?????????? ???? ?? ???????? ????.....?? ?? ?????? ? ???? ?????????? ???? ? ????....????? ?? ???? ?? ???? ?? ????? ???????? ??.....?? ?? ??? ???????? ??

Mithilesh Kumar Singh · 5 years ago `

It's disturbing to know that an elected government is acting against a section of its own people who are Self employed & a doing a sort of social services while earning their living. Whereas almost all govt employed persons including that of SEBI & finance ministry's are getting a handsome salary, job security etc. This decision of the govt.will further enhance unemployment. The govt agencies like banks & other financial agencies are already giving tough competition to ifas because of the advantages they have due to their access to investors accounts. How can our country progress when the gov't itself trying to degrade it in the name of investors protection. SEBI should first try to stop misleading ads by ET money & Paisa bazar.

Amit · 5 years ago

Correct

Sunder · 5 years ago `

Why give Trail commission too, ban all commissions to IFA's. Let us all get in into the charity mode and provide all our services for FREE OF COST (FOC). Then we all can live on fresh water and air only. Amen!!!!

Vivek Trivedi · 5 years ago `

Do not worry, this too shall pass, we have survived all kinds of onslaught, we will survive this one too, Bank RMs are no match for us. Anything which is good for the client is also good for us

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