Trail commission of distributors have come down drastically post the ban on upfront commission. In fact, in a few instances, a few AMCs have reduced trail commission of distributors to an extent of 0.30%.
Though only a handful of fund houses have released their brokerage structure, others are expected to follow this structure.
A CEO of a mid-sized fund house attributed this decline to expected reduction in TER. “In my view, most fund houses have factored in the proposed reduction in TER structure. Though the amendment in regulations on reduction of TER is still awaited, most fund houses have been trying to check their costs.”
Another key reason for this reduction is that AMCs will have to pay such commissions from scheme and not from AMC book. This reduces the capacity of fund houses to pay commissions. “SEBI has clarified that AMCs cannot give commission from their books. Also, the market regulator said that the difference between the expense ratio of direct and regulator plans would now be to the extent of distribution commission,” said a CEO of an emerging fund house.
Meanwhile, a few AMCs have introduced a new trail structure for B30 distributors under the head ‘Annual Retention Incentive for B30 locations’ to compensate distributors having assets under advisory from B30 locations. This has replaced upfront commission paid to distributors for B30 assets. So far, fund houses have paid such upfront commissions of upto 2%. However, a few distributors told Cafemutual that such a payout has been reduced by 0.50% to 1.50% in an all trail structure.
Last week, SEBI has banned upfront commission in mutual funds and directed fund houses to follow all-trail model to compensate their distributors. In addition, SEBI has asked fund houses not to do any upfronting of trail commission.
