Despite AMFI’s plea to not go ahead with commission disclosure rule in account statements, SEBI has instructed AMCs to disclose commissions in half-yearly account statements from October 1.
Here are some reactions from distributors and AMC officials on the SEBI move.
“We are already giving an annual disclosure to AMFI which states that we are disclosing commissions to investors. Giving too much information to investors will confuse them. Moreover, it will also induce pass back culture,” says Vinayak Sapre, a Mumbai based IFA.
Distributors say this will led to IFAs migrate to selling other products. “This will be a regressive step and more IFAs will focus on selling insurance,” says Jitesh Babel, a Jaipur based distributor.
Bangalore based advisor Y. Priya requests SEBI to maintain status quo. “Why doesn’t SEBI make it mandatory to disclose commissions across products like structured products, PMS, private equity (up to 4%), insurance plans (up to 35%) and NCDs (up to 6%) to disclose their commissions? Only mutual funds have been wealth creators among these ridiculously expensive products! All other products have proven to be wealth destructors. I request SEBI to maintain status quo. Sometimes, silence is bliss.”
Chennai based advisor Ramesh Bhat says that the disclosure should be in percentage terms. “We are comfortable with disclosing commissions but it should be in percentage terms on every transaction. This will help clients know how much we are actually compensated. For instance, on a 1-year SIP of Rs. 5,000 per month, we get monthly commission of Rs. 35, assuming we get 70 basis points trail. IFAs spend more than this just for acquiring retail clients.”
Ramesh says that disclosing absolute commission that too in half yearly statements will send a wrong signal to high net worth clients. “This will induce pass back culture among investors. Giving too many details to clients will not be good for the industry,” adds Ramesh.
A few IFAs have welcomed the move, albeit with reservations. Chennai based advisor T. R. Santharam says that this rule should be introduced across all financial products. Also, he says that advisors need to communicate the value they bring to the table for which they get commissions. “I welcome it but such disclosure should be made compulsory for all financial products. The time has come to provide a financial horoscope to clients and get fees for it. Otherwise let clients get free advice and suffer later.”
Hyderabad based distributor Lokesh Nathany says that SEBI is trying to push the industry towards advisory model by increasing the level of transparency, “Clearly, the days for real financial planning and advisory are on the way. The sooner we accept it the better it is for all of us. Hope SEBI also makes certification stringent and not leave it to individual certifications of AMFI or IRDAI. A comprehensive certification covering all aspects of financial planning and asset classes will go a long way. We may say this is premature but at times it is good to be pushed to the wall as we work better that way.”
A few fund officials Cafemutual spoke to are also against this rule. “Disclosing commissions to investors will 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 the top 400 distributors on their websites. AMFI also publishes the aggregate commissions earned by these distributors across all AMCs.
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