The proposal to disclose distributor commissions in account statements has evoked strong opposition from distributors and AMC officials.
This matter will be discussed in the forthcoming AMFI board meeting scheduled to be held on January 21.
Cafemutual asked distributors and AMC officials as to what they think about this proposal.
Some distributors are demanding that commissions earned in insurance and other products should also be disclosed to investors which would help investors make an informed choice.
“We need only one regulator for all financial products. There should be a uniform commission structure for insurance life and non-life, mediclaim, post office schemes, etc. Such disclosure should be for all products,” suggests S Raju, a Tamil Nadu based distributor.
Another Mumbai based distributor Jaideep Shirali says that disclosing commissions in account statements will help investors know how low is the compensation received by distributors, “I disagree with the idea in principle, because mutual product distribution is not the only business where intermediaries earn commission, so it is not right to go on targeting it. But I suppose when a client sees a Rs. 5 commission on an SIP of Rs.1,000, he/she would probably understand the truth. According to the regulators, media and analysts, IFA commissions are supposed to taking great chunks out of investor returns. Maybe the investor will realize that this Rs.5 cannot even buy a bus ticket!”
Some say that distributors will migrate to selling other products if such details are disclosed to investors. “This will be a regressive step and more IFAs will focus more on selling insurance,” says Jitesh Babel, a Jaipur based distributor.
Also, distributors say that disclosing commission will create confusion among investors as it serves no purpose. “Investors decisions would get delayed which would do no good to the investor, the distributor and the AMC. Most investors have no capacity to fathom such calculations and it will create confusion in the minds of the investor, says Naril Surendra, a Mumbai based distributor.
Naril says that this would also induce pass back culture among investors. “To be fair to every seller of any service, this system should be adopted for all goods & services including life insurance and general insurance products. Why only single out mutual funds?” asks Naril.
A few fund officials Cafemutual spoke to seemed to be against this proposal. “Just like declaring daily NAV has not benefitted investors, disclosing commissions to investors will also be of no help. AMFI has already capped the upfront commission at 1%. So the pricing issue has been resolved now. Disclosing commission to investors will be a disservice to IFAs. The industry should focus on more important issues,” said a senior official from a private sector fund house.
“Transparency is good but it should not be at the cost of distributors. Distributors are rendering a service to investors and AMCs. It is not charity. Disclosing commissions won’t help investors,” said the CEO of a bank sponsored AMC.
Currently, AMCs disclose the commissions paid to top 400 distributors on their websites. AMFI also publishes the aggregate commissions earned by these distributors across all AMCs.
