SEBI has banned upfront commission in PMS and asked the industry to shift to all-trail model to compensate distributors. Moreover, the market regulator has also introduced direct plans in PMS. These changes will come into effect from May 1, 2020.
Experts feel that the ban on upfront commission would reduce mis-selling of PMS. Shobhit Gupta, Co-Founder, MoneyGain Consultants, Chandigarh feels that the recent regulations would affect all the three stakeholders i.e. manufacturers, distributors and investors. “Distributors who sold PMS only because of upfront commission will no longer distribute PMS. This could lead to a near-term slowdown in PMS inflows. From a manufacturer’s point of view, PMSs that are similar to MFs but thrive by offering higher commission to distributors will now find it difficult to survive. Moreover, the regulations have created a level playing field between large and small players by introducing all trail model. For investors who wanted to switch to direct plans, these regulations augur well. It will be a challenge for distributors to keep their clients.”
Jay Shah, Founder, pmskart.com, a PMS research website also feels that the ban on upfront commission would address mis-selling issues. Further, he feels that PMS players that have had the firepower to pay multiyear commissions will now have to revisit their business model to attract fresh money.
From the direct plan perspective, it is a bit of a hasty decision as PMS with a wider reach will be more successful in getting their schemes to the end user, he feels. “In my view, SEBI could have created more transparency by improving disclosures that can be available to anyone. Most individuals do not have the access or the ability to evaluate multiple PMSs,” he adds.
Anand Shah, CEO, NJ Advisory Services believes that the ban on upfront commission will surely prompt distributors to readjust their business model. On introduction of direct plans in PMS, he said that the popularity of PMS would be a function of financial literacy. “Just like mutual funds, the direct plan will take time to become popular in PMS and distributors remain instrumental in PMS industry’s growth,” he said.
Vinod Jain of Jain Investments feels that the ban on upfront commission along with increasing the minimum investment size to Rs.50 lakh would slowdown the inflows to PMS industry for 2-3 years.
On introduction of direct plan, he feels that many investors started investing in the PMS industry because they value and trust the advice of distributors. So, these investors are unlikely to migrate to direct plan, he believes.
