In order to check mis-selling and ensure that PMS distributors follow high ethical standards in dealing with clients, SEBI has issued a code of conduct for the distributors of PMS in which it has asked them to disclose trail commission to clients before selling PMS.
SEBI said, “Disclose to the clients all material information including the details of distribution commissions for various investment approaches.”
Among the other key points in the code of conducts for PMS distributors are:
- Adhere to SEBI PMS regulation 2020 from time to time related to distributors, distribution and advertising practices
- Cannot lure clients by offering compensation such as rebate or gifts
- Cannot give assurance on performance and returns of PMS
- Put in place an infrastructure to ensure timely receipt of disclosure document, statement of portfolio and performance, statement of fees, audit report and so on
- Keep client details confidential
- Cannot make negative remarks on PMS and various investment approach. However, you can highlight comparative analysis along with complete facts
- Hold valid certification as specified by SEBI at all times
- Maintain high standards of integrity and fairness
- Act with due skill, care and due diligence in the conduct
- Ensure product suitability by doing risk profiling
- Protect interests of clients first
- Cannot recommend PMS based on commission structure or incentive
- Disclose document, investment approach, fees and charges and terms of agreement before starting business relationship with clients
- Assist your clients in completing KYC and in-person verification
- Provide latest information about investment approach and assumption made in performance calculation, risk assessments, performance projection if any
- Inform clients about risk associated with the product
- Cannot indulge in manipulative, fraudulent or deceptive practices
SEBI has asked PMS players to put in place a mechanism to independently verify the compliance of their distributors with the code of conduct.
In addition, distributors will have to submit a self-certification to ensure their compliance with code of conduct within 15 days from the end of financial year.
Currently, all mutual fund distributors having ARN can distribute PMS products to their clients.
