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2022 kept the MFD/RIA community busy with a lot of paperwork and compliance issues. While the industry did verification of mobile number and email id, made nomination compulsory and PAN and PEKRN mandatory for redemption, it eventually increased the workload of many MFDs/RIAs to finish these tasks before the stipulated timelines.
However, the rally in market kept the enthusiasm of MFDs/RIAs high. There are other events that happened in 2022 which will have huge impact on their business in days to come. Let’s look at these changes:
New ‘code of conduct’ for MFDs
AMFI revised the code of conduct for mutual fund distributors in which it asked MFDs offering online transactions to explicitly tell their clients that regular plans pay commission to MFDs.
Further, AMFI also asked MFDs facilitating digital transactions to prominently display their commission structure from different competing schemes across fund houses through a hyperlink.
Stringent ARN renewal norms
Trail commission of distributors can be forfeited if they do not renew their ARN within three months of expiry. According to the new norms, ARN will be considered invalid if it is not renewed on or before the expiry date. Also, MFDs can renew their ARN six months before its expiry.
In addition, business procured during the expired period or invalid ARN period will be shifted to direct plans. This means, SIP business of MFDs will go to direct plan during the expired period
Trail commission on assets built before expiry will be withheld till three months of the expiry of ARN.
ARN renewal goes completely online
AMFI has done away with the physical route to renew ARN. MFDs can write to AMFI at amfiarn@camsonline.com if they face any difficulty in renewing their ARN.
Impact on MFDs with stock broking arm
SEBI discontinued usage of pooled account for MF transactions. With this, MFDs having stock broking arm saw huge impact on their business and inflows in mutual funds.
MFDs having stock broking arm used to execute MF transaction seamlessly through their pooled account. Pooled account is a bank account of brokers that they use to facilitate transactions across financial products.
MFD shuru karein campaign
AMFI launched a campaign ‘MFD Karein Shuru’ to promote mutual fund distribution as a remuneration and ŕespectable profession. MFD Karein Shuru is a media campaign that aims to encourage people to become mutual fund distributors. The campaign aims to increase number of distributors from 1 lakh to 5 lakh individual MFDs.
Grace period of DSC submission reduces
AMFI reduced the grace period for MFDs to submit annual Declaration of Self-Certification (DSC) from six months to three months. With this, MFDs have to submit their annual DSC by September 30, 2022 every year.
Introduction of execution only platforms (EOPs)
Soon, there will be no free lunch for direct plan investors as platforms like Coin by Zerodha, ET Money, Kuvera, Groww and Paytm Money can no longer offer free services to investors.
SEBI introduced a new distribution channel in which it has asked direct plan platforms to decide if they represent investors or AMCs. That means, they have to become an agent of investors or an agent of AMCs.
While agents of investors will have to charge fees directly from investors, agents of AMCs can get commission in the form of transaction fees.
Strict action against splitting of application
AMFI can now suspend ‘opt in’ distributors who split application to charge transaction fee multiple times for six months from doing fresh business. This means distributors who have violated ‘opt in’ norms cannot do lumpsum business for six months. However, SIPs, STPs and SWPs will remain intact.
Consolidation is the new trend
A few large distributors either tied up with large platforms or large boutique firm or came together to leverage each other’s strength. Among some key reasons for consolidation are ensuring business continuity through succession, reducing cost of operations and expanding business.
