PMS players can continue to pay upfront commission to distributors till September 30, 2020.
Keeping in mind the coronavirus pandemic, SEBI has given extension of three more months to comply with the new regulatory norms which include ban in upfront commission in PMS, compulsory shift to trail model to compensate distributors and introduction of direct plans in PMS among others.
With this, from October 1, 2020, PMS players will move to all trail model. Such a compensation has to be made by fees received by portfolio managers (from scheme). Also, PMS and distributors will have to ensure that prospective investors are well informed about the fees or commission earned by their distributors before on-boarding them.
Currently, mutual fund distributors or individuals who have cleared NISM Series VA exam can become PMS distributors.
In addition, PMS players will have to introduce direct plan. In a circular, SEBI said, “Portfolio managers shall provide an option to clients to be on-boarded directly, without intermediation of persons engaged in distribution services.” In fact, PMS players will have to prominently disclose about such an option in their disclosure documents, marketing material and on their website.
Here are the other key changes to PMS regulations deferred till September 30, 2020:
- PMSs have to charge brokerage at actual from clients
- Operating expenses cannot exceed 0.50% per annum on daily average AUM
- Introduction of graded exit load structure i.e. PMSs can charge exit load of 3% of the amount redeemed in first year, 2% in second year and 1% in third year. There will be no exit load after three years
- Facilitate direct on boarding of clients
- Uniform reporting standards across the industry. This includes investment objective, description of types of securities, investment approach, allocation across types of securities, basis of selection of securities, indicative tenure and horizon, risks associated and other salient features
- Disclose performance net of all fees and expenses, material changes and changes in investment approach
- Follow all trail model to compensate distributors and disclose such fees to their clients
- Put in mechanism to ensure that distributors adhere to a code of conduct
