SEBI Chairman UK Sinha has asked mutual fund industry to streamline the commission structure of distributors. He was speaking at the 11th CII MF summit held in Mumbai.
Sinha has express his discontent with the disparity in commission structure and said that the commission paid to mutual fund distributors in India is very high compared to global standards.
“A recent study on mutual fund distribution shows that the commission payout of mutual fund distributors has doubled in one year i.e. from Rs.2500 crore in FY in 2013-14 to Rs.5000 crore in FY 2014-15. This is one of the highest in the world. It has to be kept within manageable limits so that no eyebrows are raised.”
He said that the market regulator has studied 25 countries and found that 4 of them are having the highest commission structure and India is among one of them. Further, of nine jurisdictions studied – India, Australia, Japan, China, Korea, UK, USA, Hong Kong and Luxemburg, three jurisdictions are not allowed to pay any upfront commission. Even trail is not allowed in 3 countries, he added.
Signaling the distribution industry to move to fee based advisory model, he said, “World over cost and fees are going to be a very important point in any debate. Globally, the financial distribution industry is moving towards the fee based advisory model. In India, Financial Stability and Development Committee (FSDC) is discussing the cost and fee structure amongst all financial products.”
Expressing his resentment with only 295 registrations with SEBI under RIA regulation, Sinha said that the market regulator cannot allow distributors to charge fee for advice. In fact, SEBI has asked its team to look into the cases where distributors are engaged in such activities. “It is the writing on the wall. Please understand this. Distribution along with advisory fees is not going to last long,” he said.
Meanwhile, Sinha said that SEBI is willing to have a strong SRO for regulating the distributors.
