JP Morgan and Sundaram have reportedly decided not to adhere to AMFI’s latest guidelines on commissions.
Last month, AMFI issued its best practice circular to AMCs in which it has proposed to put a cap on upfront commission at 1% and no cap on trail commission. AMCs can decide the trail on their own but it has to be on perpetual basis. Also, AMCs have a choice of not paying any upfront and adopting full trail model. The new commission structure has come into effect from April 1.
Harsha Viji, Managing Director, Sundaram Asset Management had told Cafemutual that his fund house is not adhering to AMFI’s proposal on new commission structure. “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.”
“Adhering to new commission norm will restrict our growth. We have neither paid high upfront commissions nor launched any closed end funds. We have paid moderate commission to our distributors. We don’t have too many schemes and we have to compete with the existing funds having a track record of performance, dividend payment etc. Distributors spend a lot of time and effort to acquire clients and they deserve to be adequately compensated for this,” said a senior official from a fund house.
Though most small fund houses have agreed to comply with the AMFI’s new circular, many say that they are doing it out of a fear that they will face SEBI’s wrath if they don’t toe the line. “AMFI is not an SRO and it does not have any legal stand to enforce its guidelines. However, being a small fund house, we cannot fight with SEBI and AMFI,” said the sales head of a foreign fund house.
SEBI chairman U K Sinha has recently said in a public forum that the regular would not intervene in AMFI’s recent move on capping upfront commissions. Sinha said that AMFI has the authority to take a decision on commission structure of distributors and issue best practice guidelines. SEBI would not like to get involved in this, he added.
