Somewhat contrary to what SEBI chief U K Sinha had said that the market regulator will not intervene in regulating distributor commissions, SEBI has asked fund houses whether they are adhering to AMFI best practices circular on the new commission guidelines.
In a letter sent to fund houses on Wednesday, SEBI has asked fund houses whether they are complying. Fund houses were given a deadline of 3 pm today to revert.
SEBI has reportedly written, “AMFI has issued two best practices guidelines on rationalization of commission. We have informally heard that a few AMCs are not following this in spirit. You are advised to provide your status on compliance with the new commission guidelines by 3 pm on Thursday.”
Last month, AMFI had approached SEBI to seek its recommendations to ensure compliance of best practices circular on commission among all its members.
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 within the distributable TER.
Later, AMFI issued another best practices guideline in which it has proposed AMCs to offer three year upfront commission at the time of SIP enrollment to distributors. AMCs can offer three year upfront commission when a SIP is registered, subject to a cap of maximum 1%, on SIPs of up to Rs. 10,000 per month. However, this rule is applicable for SIPs having a minimum tenure of 36 months. If clients redeem or stop their SIPs before three years, the proportionate amount of upfront commission is clawed back, said sources.
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.
