AMFI is likely to approach SEBI to seek its recommendations on how to ensure compliance of best practices circular on commission among all its members, said three people familiar with the development. The decision was taken in the board meeting held on Friday.
Fund houses which are complying with best practices guidelines on upfront commission in spirit said that even they would back out if other members flout the norms.
Earlier, AMFI had issued its best practices circular to AMCs in which it had asked fund houses to discontinue ‘upfronting’ of trail across all schemes. Also, it has put a cap of 1% on upfront commission and given freedom to fund houses to decide trail commission. However, it has to be within the distributable TER.
H N Sinor who was the then CEO of AMFI had told Cafemutual that 35 fund houses were adhering to the new commission guidelines. However, a few fund houses including Sundaram, JP Morgan, HSBC and Baroda Pioneer are reportedly not adhering to AMFI’s best practices guidelines.
The CEO of a private sector fund house said, “A few fund houses are not complying with the best practices circular. This is affecting our business. AMFI should ensure better enforcement of such guidelines.”
Harsha Viji, Managing Director, Sundaram Asset Management had told Cafemutual in April that his fund house would not be 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 commissions 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 which is not adhering to the guidelines.
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 practices guidelines. SEBI would not like to get involved in this, he added.
