In its feedback on the Sumit Bose Committee recommendations sent to SEBI, the Foundation of Independent Financial Advisors (FIFA) has opposed the proposal in which the committee has recommended introduction of a one-page disclosure form called ‘distributor-investor mutual fund disclosure form’.
FIFA has joined hands with a number of other local/regional associations of IFAs to form a United Forum to represent IFAs across the country and has submitted their consolidated feedback to SEBI.
The Bose committee has recommended that distributors should disclose the percentage of trial commission in this form.
FIFA said that such a disclosure will encourage pass back practices. “Declarations of commissions at the time of sale will leads to consumer asking for rebate of commission. Regulations should be passed that forbid consumers from asking and receiving such rebates and strict penalties prescribed for the same Concrete steps on how such a practice would be identified should be laid down. Penalties too to be well defined. Awareness to be built through product brochures to ensure that clients are informed about this practice that could be detrimental to their interest,” says FIFA in the letter.
The proposed form consists of four sections – AMC details, scheme details, investor profile and investment details and total expense charged to the investors.
While AMC details will have information on name, year of establishment and net worth of a fund house, scheme details section gives information on riskometer, past performance, CAGR and absolute return of the scheme and benchmark return.
The third section has a few questions on risk profiling to assess the risk appetite of investors like investment horizon, asset allocation and time horizon. In addition, this section has a question which asks investors to specify the reason for redeeming whether it is for churning portfolio or switching investments.
The last section of the form includes details of trail commission, time of investment, exit load and other expenses.
Also, FIFA said that this form would affect the mutual fund industry’s objective of moving towards paperless investing. “At a time when the mutual fund industry is trying to minimize/move away from paper work, this proposed form is a step back from the paperless objective. Signing a one-page disclosure at every point of sale is more likely to exacerbate inconveniences for investors by increasing the amount of paperwork they have to deal with. As it is, investors already deal with extensive KYC requirements, which need to be updated from time to time. Also, investors invest several times, in several funds over the years and making them sign disclosures at each time will be cumbersome and can well put them off mutual fund investing altogether. Such a process will be considered regressive, especially in online platforms that have come a long way to free investors from paper work,” says FIFA.
