Not all AMCs would like to follow AMFI’s best practice guidelines.
Some fund houses have opposed AMFI’s move to cap upfront commission at 1% and they say that they will not toe the line. Their argument is that since AMFI is not an SRO it does not have any legal stand to enforce its guidelines.
While some AMCs have been dissenting AMFI’s proposals without coming out in the open, Sundaram has openly opposed the trade body’s decision to cap upfront. “We are very concerned that concerted industry action on pricing can be challenged by distributors under the CCI as amounting to a ‘cartel’. While I believe this is not the intent or the tenor of the current proposal, legal action from small distributors (which is likely) will muddy the waters and lead to unnecessary bad press for our industry – particularly when we are trying to attract new IFAs into the market. Come 1st April we are planning to cap commissions at 4%, reduce close ended fund launches, make call-backs to customers in higher risk funds and spend investor education funds to combat mis-selling,” Harsha Viji, Managing Director, Sundaram Asset Management told Cafemutual.
The decision to cap upfront was taken by AMFI Board of Directors representing a cross section of 15 AMCs. Other AMCs which are not part of AMFI Board rue the fact that their opinion was not taken into consideration while formulating this rule. “AMFI is largely controlled by the top AMCs. The industry is divided. Sometimes, large players get things done from AMFI which may not be in the best interest of all players,” says Nilesh Sathe, CEO, LIC Nomura Mutual Fund.
“We don’t think it will be followed by all AMCs. AMFI is not an SRO to enforce this diktat. Even today some AMCs don’t abide by AMFI’s best practice circulars,” said an industry expert.
Many AMCs which are not on the board of AMFI are happy to abide by AMFI’s decision. “We will follow what is in the best interest of investors. While it may not be mandatory it’s a matter of best practice,” said the CEO of a private sector fund house.
AMFI’s guidelines on commissions are expected to come this week.
Experts say that if an AMC decides not to abide by AMFI’s best practice circular, it has to take consent of the trustees. “AMFI’s best practice circulars are followed by AMCs but there can be exceptions. AMCs can take consent from trustees to formulate their rule. An association cannot enforce rules,” say a top official from a wealth management firm.
Some say that AMFI should only decide upfront and not trail. “SEBI had asked AMFI to come up with measures to bring down high upfront commissions. However, AMFI has gone one step ahead and meddled with trail. We will take a call after seeing the circular,” said the sales head of a public sector fund house. One of AMFI’s proposals is that trail commission could be in the range of 15-60% of net TER on perpetual basis.”
The issue drew SEBI’s attention after some fund houses reportedly paid high upfront commissions in their closed end funds. Earlier, industry officials were expecting that SEBI would regulate commissions. However, the idea of SEBI regulating commissions drew widespread criticism from all stakeholders. Thus, SEBI asked AMFI to intervene and come up a solution on its own. If AMCs don’t follow AMFI’s best practices guideline, it remains to be seen whether SEBI will intervene in this matter.
