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AMFI has asked mutual fund distributors not to run sales contests for their employees/sub brokers to promote selective schemes, which could result in mis-selling.
In March, AMFI directed MFDs having sub brokers and employees not to run any competition related to achievement of business scale or sale. Such a requirement was relaxed if the program is held to recognise employees/sub distributors,, which is not limited to mutual funds. The recognition should consider other regulated products like deposits, insurance, PMS, AIFs and so on subject to approval of MFD’s compliance officer.
However, AMFI and SEBI found violation of this exception as they found instances of sales promotion campaigns run by mutual fund distributors in the garb of training programs. In these campaigns, MFDs reportedly offered foreign and domestic trips to their employees and sub distributors for mobilizing certain business across multiple financial products.
The trade body has also directed such MFD firms to pay only trail commission in monetary terms to their sub brokers. These distributors are not allowed to give gifts to their employees/sub distributors or compensate them in any other form.
Further, AMFI clarified that while MFD having a sub broking arm can conduct training programs and learning events for their employees/sub distributors, such a program/event can be held in India and not in foreign countries or exotic tourist destinations.
AMFI said that it will take strict action against MFDs who do not adhere to these guidelines. It clarified that it may disempanel such distributors temporarily from onboarding of new clients, accepting new business. Further, it may also suspend ARN of an erring distributor.
AMFI has also asked AMCs to refrain from making any commission, which is similar to upfront commission. It said that AMCs can only pay trail commission in monetary terms.
Also, AMCs cannot run sales contests or give sales targets to their distributors.
Also, AMCs cannot conduct training programs in foreign locations. Also, AMCs cannot shortlist MFDs for their training programs based on sales performance.
Finally, they cannot sponsor any training events run by their MFDs to recognise the performance of MFDs employees and sub distributors.
These guidelines are to be adhered to with immediate effect, said AMFI.
