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2024 was the year of streamline of processes. While AMFI standardized key business processes like transfer of AUM and ARN, it introduced a host of new initiatives like allowing MFDs to get trail commission if investors transfer assets.
Overall, the rally in the market kept the enthusiasm of MFDs/RIAs high. There are some events that happened in 2024, which will have a huge impact on their business in days to come. Let’s look at these changes.
MFDs are now entitled to get trail commission if investors transfer assets
AMFI allowed AMCs to pay trail commission to MFDs if a client transfers his assets from one MFD to another.
However, AMCs can only pay trail commission after cooling off period of six months from the date of transfer of assets by investors.
Growth in number of top MFDs
The number of distributors who qualify as top distributors went up sharply in FY 2024.
An analysis of AUM disclosure of top distributors shows that 2499 MFDs qualify as top distributors in FY 2024. In FY 2023, the industry had 1781 top MFDs. This indicates that 781 new MFDs have qualified as top distributors in FY 2024.
These top distributors managed AUM of Rs.18.53 lakh crore and received gross commission of close to Rs.12,000 crore in FY 2024.
Careful selling
SEBI said that the mutual fund distributors and associated persons of the asset management companies will also fall under the new regulations in which SEBI has advised its intermediaries not to be associated directly or indirectly with a person or entity making claims on performance and returns.
With this, MFDs or any associated person cannot carry out these two activities:
· Providing unsolicited recommendation
· Making any claims on returns or performance of capital market products like stocks and mutual funds
No sales contest
Mutual fund distributors cannot run sales contests for their employees/sub brokers to promote selective schemes, which could result in mis-selling.
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.
Standard process to transfer assets on demise of distributors
AMFI issued standard guidelines for nominees and legal heirs of the deceased MFD to simplify the transmission process.
According to the new norms, the nominee or legal heir has to immediately submit a written intimation to CAMS – AMFI unit informing about the demise of the MFD. Such a communication should accompany ARN and a true copy of death certificate attested by notary or gazetted officer.
The nominee who wants to continue the distribution business will have to obtain a valid ARN by appearing for the NISM Examination. Also, the nominee has to empanel with all AMCs in which the deceased MFD had a business.
Further, 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.
Relaxed norms for MFDs who want to change the business structure
AMFI allowed individual MFDs who want to change their business structure from individual to LLP, partnership firm, private limited etc. to get provisional ARN registration for the new entity for a certain time.
However, MFDs availing this benefit will have to map their EUIN within 6 months to become fully compliant.
This came after AMFI observed instances of incremental inflows going to direct plans in absence of valid individual ARN during the transition period.
Simplified ARN transfer norms for MFDs
AMFI issued uniform guidelines for MFDs to execute transfer of assets from one distributor to another.
According to the new norms, the new distributor will have to empanel with all fund houses with whom the old distributor has a tie up. The old distributor has to get these details from RTAs like CAMS and KFintech and provide it to the new distributor for empanelment.
The next step is to inform your clients in writing via letter or email informing them about the change in ARN and the rationale behind it along with the details of the new distributor.
Transaction requests with invalid ARN go to direct plans
MFDs should be mindful of keeping their ARN active all the time. AMFI clarified that transactions received under ‘invalid ARN’ will go to direct plans.
The trade body has directed RTAs and AMCs to check the validity of ARN at the time of execution of transactions.
Introduction of part time advisers
SEBI introduced the concept of part time registered investment advisers (RIAs).
Under this, anyone who does not deal with investment and security markets like agents, CAs, lawyers, doctors and teachers can become a part time RIA.
SEBI clarified that an employee can also become a part time RIA provided she obtains a no objection certificate from her employer. Further, if an employee switches jobs, there is no need to obtain NOC again.
Mutual fund distributors cannot become part time RIAs since they deal with security market products, clarified SEBI.
