IFAs can sell pension products by empaneling with any Point of Presence under sub-broking model.
In order to set standards and streamline the process of pension fund distribution, PFRDA has come out with a draft regulation for the distribution of National Pension System (NPS) to tweak its existing model called Points of Presence (POP).
In the circular the regulator said, “The objective of the regulation is to set standard for the eligibility, governance, organization and operational conduct of those who wish to market or distribute the national pension system account. The regulation would ensure an effective and credible use of inspection, investigation, surveillance, supervision and enforcement powers and implementation of an effective compliance program in tune with the spirit of PFRDA Act.”
POP is an entity for channelizing pension products to subscribers. POPs are the first point of interaction of the NPS subscriber. These entities act as collection points and extend a number of customer services to NPS subscriber including requests for withdrawal from NPS. Almost all the banks (both private and public sector) and majority of stock broking firm are enrolled to act as POP under NPS.
Through the circular, PFRDA said that POPs should maintain books of account and audit for record keeping. It has proposed that these entities need to put in place an effective mechanism to receive and redress complaint from its subscriber.
Eligibility: An entity should have a minimum of 15 branches having access to information technology, electronically link to central record keeping agency and other basic facilities. Earlier, POPs were required to have a minimum of 25 braches spread over at least 3 states.
It should have at least a three year track record of profitability out of the last five financial years. The institution applying for POP must be in the business of marketing/selling of financial products having approval from at least by one regulator of financial service like RBI, SEBI or IRDA.
Structure: Apart from distribution team, POP should appoint a Compliance Officer who will be responsible for monitoring compliance of rules and regulations, notifications, guidelines etc. and administrative work.
Net worth and fees: PFRDA has proposed to reduce the net worth to Rs. 2 crore from 10 crore for floating distribution business. Also, a registration fee of Rs. 25,000 is required to pay for obtaining a license. Initially, the license will be issued for five years which can be renewed 90 days prior to expiry. At the time of renewal, the license fee would be 0.50% of remuneration earned in the preceding financial year subject to minimum of Rs. 25,000 and maximum of Rs. 1 lakh.
Remuneration: POP can charge an upfront fee for initial subscriber registration. They can also charge a fee on subsequent transactions. Currently, POP can charge Rs. 100 for initial subscriber registration and 0.25% on the subsequent transactions subject to a minimum of Rs. 20 and maximum of Rs. 25,000. Also, for incorporating any change in the subscribers account POP can charge up to Rs. 20.
PFRDA has not given any clarification on the quantum of fees to be charged on these services in future. However, some financial advisers are of the view that the commissions could be up to 0.25%.
Can an IFA sell NPS?
IFAs can sell NPS by empaneling with any one POP under sub broking model called POP – sub entity (POP-SE). They should pay a certain amount of fee for registration to PFRDA and enter into an agreement with POP for POS-SE.
PFRDA has invited public comments on these draft regulations by 27th June.
