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AMFI has slightly revised the ARN transfer norms in which it has clarified that MFDs are entitled to get trail commission if an investor changes MFDs during transfer of AUM.
If an investor transfers his assets to the new ARN holder at a time when her MFD initiates transfer of AUM due to any reason, the new MFD will be entitled to get trail commission, clarified AMFI. So far, if investor changes their MFDs, distributors were not getting trail commission.
AMFI said, “In the event the unitholder has an objection to shifting his/her/its investments under the ARN of the proposed transferee distributor on account of changes shift to a different distributor of his/her choice, then in such cases the new distributor opted by the unitholder shall be eligible to receive trail commission on the MF investments of the clients transferred under his/her/its ARN, on a prospective basis on the valid transferred assets, basis the lower of the commission rate (as applicable on the date of transfer) of the transferor and the transferee distributor. For avoidance of doubt, it is hereby clarified that the above provision is applicable only in case of transfer of AUM initiated by the transferor MFD.”
While all other norms remained unchanged, here is the summary of the revised guidelines on AUM transfer:
If investor changes distributor or shifts to direct plans in a regular course of time
- There is no revision in this. Investors can continue to change their distributors and switch to direct plans without obtaining NOC from their existing distributor
- Remember if your clients change the ARN code i.e. from your ARN to another broker on their own, there will be no trail commission on such a transaction
If existing distributor initiates change in distributor
Distributors can initiate change in ARN
- If they change their name/legal status such as LLP, private limited and so on
- In case of merger or acquisition
- Transfer of AUM from national distributor to sub distributor. Such a transfer is allowed only if sub distributor transfers his entire assets with national distributors. Both ND and sub distributor will have to certify to the AMC that the entire AUM is transferred
Executing AUM transfer
You have to ensure that your ARN is valid and you are KYD complaint and you have submitted all self-certifications before transferring your assets; this applies to the new distributor who receives such assets as well.
Also, you need to transfer your entire assets to the new distributor. Once you transfer your assets, you will have to surrender your ARN to AMFI for cancellation. You will have to submit your original ARN within 15 days of such a transfer along with a handwritten letter. A copy of such a letter has to be sent to respective fund houses.
However, if you continue to work as a sub-distributor with the distributor to whom you transferred your assets to service clients, you are not required to surrender your ARN. Also, you cannot do fresh business independently under your ARN after transferring assets.
Also, you are allowed to transfer AUM by surrendering your existing ARN and obtaining fresh ARN/EUIN. AMFI will honour such transfer even if existing ARN is surrendered or not valid. However, you will have to make such a transfer request within six months of cancellation of the existing ARN.
Distributors will have to inform their clients in writing via letter or email informing them about the change in ARN and the rationale behind it along with the details of new distributor. In addition, you will have to highlight that if the clients have any objection for the change in distributor code, they must write to the respective AMCs directly. AMCs will have to effect changes to ARN within 15 days if they don't receive any objection from clients.
The transfer application must have reason for transfer supported by evidence and certification that letters/emails have been sent to all existing clients intimating them of change of distributor. You will have to attach a sample of such communication along with a list of clients.
The new distributor would get trail commission only after transfer of valid assets (KYC compliant accounts). AMCs would pay commission to new distributors only after cancellation of old ARN except when old ARN holders opt to become sub-distributor.
Trail commission rate for the new distributor will be in line with the trail commission rate of old distributor. For transfer between national distributor and sub distributor, trail commission rate would be lower of commission on old ARN and new ARN.
If distributor changes due to voluntary exit of ARN holder
At times, a few distributors voluntarily discontinue their distribution business. Such distributors will have to inform their clients in writing through email/letter that they should get a new distributor of their choice. These distributors will have to tell their clients to write to respective mutual funds about their decision to change MF distributor and allot another distributor. A copy of such a communication has to be submitted to respective AMCs.
In case a distributor’s ARN has expired and he does not renew his ARN within 3 months, the AMCs will have to write to clients to choose another distributor or switch to direct plan. Further, if he does not renew his ARN within 6 months of its expiry, AMCs will have to permanently cancel such ARNs and no fresh business will be accepted against such an ARN.
AMCs will have to keep records of such investors and change ARN code linked to the folio as and when such investors change distributor. AMCs can pay commission to the new distributors on valid assets in such a transfer. The trail commission rate would be lower of both.
AMFI has cautioned that distributors cannot use such a transfer to circumvent AMFI guidelines. Typically, if your clients change the ARN code i.e. from your ARN to the new ARN on their own, there will be no trail commission on such a transaction. However, if client changes ARN due to voluntary exit of existing distributor, the new distributor is entitled to get trial commission.
If transfer of AUM is due to death of a distributor
In order to transfer AUM of a deceased MF distributor to the ARN of nominee or legal heir, the ARN of deceased distributor has to be valid on the date of demise and his trail commission not under suspension.
In addition, the nominee or legal heir must have a valid ARN and be KYD compliant as on the date of request of such a transfer. The new distributor will have to submit his annual declaration of self-certification (where applicable) due as on the date of request of transfer of AUM.
Here are other key points to remember
- Only valid assets can be transferred to the legal heir or nominee
- The new distributor has to apply for cancellation of ARN of deceased distributor to CAMS-AMFI unit within 6 months of date of demise. CAMS will send a confirmation to the new distribution on receipt of such requests
- CAMS will have to cancel the ARN and intimate all AMCs and RTAs
- The new distributors will have to individually approach all empanelled AMCs and make an application for transfer of assets to his ARN
- The new distributors will have to intimate all clients of change in ARN through letter or email. He will have to highlight that if the clients have any objection for the change in distributor code, they must write to the respective AMCs directly
- The transfer application must have – reason for transfer supported by evidence and certification that letters/emails have been sent to all existing clients intimating them of change of distributor. You will have to attach a sample of such communication along with list of clients with PAN and folio numbers
- A sample letter of such a letter has to be sent to respective AMCs
- AMCs will have to effect changes to ARN after cooling period of 15 days. In case of any objection, AMCs can hold such a transfer
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