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The Foundation of Independent Financial Advisors (FIFA) urged AMFI to revise its best practices circular in which it has restricted any upward revision on payment of commission to distributors on assets built after March 2015.
In a letter sent to AMFI, FIFA requested AMFI to remove bar on upward revision on commission payment to distributors who are currently working on decreased margins.
The association feels that this will provide an opportunity to fund houses and MFDs to discuss commercials whenever there is increase in TER due to decrease in size of the scheme. It said, “We request your good self to kindly review and modify the best practices circular to the effect of removing the stipulations regarding bar on upward revision of the distributor’s commission. Such a modification would not only preclude the possibility of a conflict between the best practices circular and the recommendations of SEBI in the consultation paper but would also, to the least, provide an opportunity to the AMCs and distributors to mutually discuss the remuneration paid to the distributors and provide a necessary reprieve to the distributors who are presently functioning on ever decreasing margins.”
The association pointed out that while AMFI does not allow any upward revision on assets built after March 2015, fund houses are allowed to increase TER based on size of fund. It said, “The underlying thought for determination of the TER is that the TER of a scheme keeps on decreasing as the AUM rises due to economies of scale. Conversely, a substantial decrease in the AUM of schemes would necessarily lead to rise in the allowable TER of the concerned schemes of the MFs, then in that case, while the AMC is allowed to maintain an increased allowable and effective TER, the commission paid to distributors is specifically capped due to the best practices circular.”
Dhruv Mehta, FIFA Chairman said, “It is submitted that the express bar on the upward revision of the distributor’s commission goes against the ethos of the best practices circular as it does not take into consideration the interest of the mutual fund distributors, which is a directly affected party.”
