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SEBI’s circular dated March 18, 2016 detrimental to MF industry affecting 1.2 lacks registered investment advisors

SEBI Norms caused Moral Panic to Mutual Fund Distributors:
SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2016/42 dated March 18, 2016 , instructing Asset Management companies (AMCc) to disclose the amount of actual commission paid by AMCs/Mutual Funds (MFs) to distributors ( in absolute terms) during the half-year period against the concerned investor’s total investment in each MF scheme. The term ‘commission’ refers to all direct monetary payments and other payments made in the form of gifts/rewards, trips, event sponsorships etc by AMCs/MF to distributors.
The above SEBI circular mandates this disclosure from October 1, 2016.
The reason for oppose by the MF Distributors:
1. Mutual fund distributors are already giving an annual self declaration (SDF) to AMFI which states that “we have disclosed all commissions (in the form of trail commission or any other mode) payable to us in different competing schemes of various Mutual Funds from amongst which the scheme was recommended to our investor”. Also, 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. Why this circular again?

2. The move will promote pass back i.e on seeing the statement that how much the distributor has earned; investor will ask passback from the distributor. It is important to highlight here that the recent circular contradicts its earlier circular No. MFD/CIR/ 06/210/2002,dated June 26, 2002 under the heading CODE OF CONDUCT FOR INTERMEDIARIES OF MUTUAL FUNDS which says “Intermediaries will not rebate commission back to investors and avoid attracting clients through temptation of rebate/gifts etc.”
It is very obvious & human nature that if a mobile phone cost Rs.20000/- & its mention on the mobile cover that the seller is getting Rs.2000/- profit margin on this mobile, the purchaser is bound to ask for the pass back.
Does this circular do not contradict SEBI’s June 26, 2002 circular?

3. If I am not wrong, at present there is no disclosure of any profit margin in any business in India. Let Govt of India make in mandatory to print & disclose the profit margin on every business & every product. Disclosing only in MF, will destroy this industry, apart from destroying the livelihood of 1.2 lacs registered distributors associated with this business. Also, no new entrant will join this business under this draconian law of SEBI. Already, only 20,000 of the 1.2 lakh registered investment advisors are active currently due to several circulars by SEBI to curb Mutual Fund distributors in the past few years.

4. One can compare the different products available in the market, and would be surprised to know that expenses charged on MF schemes are least in the industry. The expense ratio allowed by SEBI to be charged for MF schemes are: a maximum 2.5 per cent for the first ?100 crore (average weekly net assets), 2.25 per cent for next ?300 crore, 2 per cent for the subsequent ?300 crore and 1.75 per cent for the balance corpus. For debt funds, the expense ratio allowed is 0.25 percentage points lower than equity funds whereas on the contrary structured products like PMS, private equity charge up to 4%, insurance plans charge up to 35%, and NCDs charge upto up to 6%. Why no commission disclosure for these products? Why disclosure only for Mutual funds where charges is the least among all the financial products?

5. SEBI has allowed expense ration to be charged by the MF COs @ 2.5 %. Out of this, there is already a capping of maximum 1% to Mutual Fund distributors from April 1, 2015. Out of this 1%, we are at the mercy of MF Cos, how much they pass on to us.
Investor is not allowed to know the bifurcation of 1.5% which is in the hands of MF Cos, but the commission paid to distributor will be highlighted separately to the investor. Is this justifiable?

6. One can compare the returns of all the financial products & would find that time & again MF has proved to be wealth creators. Then why to disturb this industry when this is providing the maximum benefit to the investor?

7. At any point, if a particular investor has time & expertise to manage his own investment, there exists a direct platform where an investor can walk into the office of Mutual Funds & invest on own his own called “Direct Plans”. When such plans already exists then what is further necessity for this circular?

8. According to Times of India dated 9, April 2016, SEBI is looking into possibilities with
MF houses on celebrity endorsement. If SEBI agrees, AMFI will have an extra corpus of about Rs 120-130 crore to spend on investor education. A part of the corpus could be used for getting a celebrity," The point I want to make here is when crores can be invested on celebrity endorsement, whose accounting in absolute terms shall not go in writing to the investors account statement but the commission of distributor which is already capped @1% will be highlighted in absolute terms to the investors. Do the regulator do not realise the effort of the distributor, only the efforts of the rich celebrity are acknowledged & paid.

9. We also feel that, it is a blow to our “Right to Privacy”. The government has admitted in its affidavit that the right to privacy is a fundamental right. The ministry of personnel has been working on a right to privacy law for some years now, with the first draft released in 2011. The law seeks to protect individuals against misuse of their personal data by government as well as private agencies. Our’s, is a regulated income that goes directly to our bank account after deduction of service tax. We do not receive anything in cash, as commission. When we disclose our entire income to Income tax officials, is there any need to disclose my income to each & every investor of mine?

10. Mutual Fund is the most transparent investment instrument available in the market.
Even if you invest Rs. 1000/- in Mutual Fund, you can have all the details like: what is the name of the fund manager, his experience, track record, past performance of his various schemes. You can also know, into which Cos your money will get invested, what shall be the charge for managing your fund. Nobody would ask all these details while investing in a bank’s FD but in Mutual fund these are the basic things that are being explained to the investor by a Mutual Fund Advisor. When the total expense charged is already mentioned in the Factsheet, which is known to investor, then what is the need to hit our privacy by mentioning our share of income separately to the investor?


Conclusion:
As per SEBI, this circular is issued to protect the interest of the investors in securities and to promote the development of securities market.

>How can the interest of the investor be protected by disclosing our commission?
>How can there be development of securities market by disclosing our commission?

Indian Mutual industry is at its nascent stage. The retail –penetration of MF is not even 50%, to be very precise it’s only 48.5%. Few banks & corporate of this country is having more than 50% of the share of MF industry. That is why, still people have the perception that India was earlier run by East India Company under Britisher’s rule & after independence it is run by corporates.

Through Distributors MF industry have reached every nook & corner of this country but it seems this has not gone down well, to few interest based lots of this country, who do not want that our country should prosper with participation of the common masses. So, these kinds of recommendation keep on coming to take this industry in the lots of few interest based people.

SEBI has allowed Direct Plans with lower total expense ratio. This is already a parallel platform for investor to choose. The distributor is competing with the direct plan with best of its services & advises for which investor is ready to invest in regular plans. When Direct plan is already in place to give competition to distributor, then why is another attempt to destroy distributor’s meagre incentive.
The data shows that bank’s particularly private banks have dominated the distribution with 30% AUM share. This is because; the banks have access to client’s bank money lying in their accounts. Investor has a faith, reliability factor associated with the bank. Bank’s advices are very well taken by the investor. Therefore, the ground reality is that the maximum mis-selling in insurance & MF happens at bank’s level. The career of a bank employee is not at stake if he makes a customer unhappy; the maximum that can happen to a bank employee is that, he will be transfered to a new place. Moreover,He may also be appreciated by his boss for making good insurance & MF sale by whatever means.
But the bread & butter of an individual distributor is totally on performance & good advice to its customer resulting into good returns. The individual distributor is liable to loose his client on one bad advice& not only this particular client will be lost but the other client associated with this investor is likely to be lost because of bad mouth to mouth publicity. Therefore, such recommendation has come to further strengthen the Bank’s distribution & finish the individual distributor.
Like, a sword cannot be compared with a needle similarly MF industry of India cannot be compared with the MF industry US, EU, Australia & UK. The world wide data of this industry suggests that US is having 48% share in MF industry of the World, Europe is having 36% share & Africa & Asia combined is having only 12 % share.
The committee should have considered the ground reality & the mindset of common masses of India before making such suggestions. The people of India, their mindset, their literacy level, their saving habit, their future planning, our demography is entirely different from the western countries. Therefore, would humbly request you, not to let this industry go in the hands of few people having vested interest & don’t let the distributors die with these kind of circulars.

Thanking You
Purshottam Jha
FutureKonnect Wealth Management Pvt Ltd.
ARN-99560

Dear Sir

It is to bring to your notice about ridiculous, maligned and one sided circular being issued by market regulator SEBI to disclose mutual fund distributor’s commission in client statements going forward.

Currently, mutual fund distributors are already giving an annual disclosure to AMFI which states that we are disclosing commissions to investors. Also, 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.

Despite AMFI’s (industry and AMC body) plea to not go ahead with commission disclosure rule in account statements, SEBI has instructed AMCs to disclose commissions in half-yearly account statements.

The following points have come up for notice and review after this circular being passed:

1) Has SEBI received complaints from customers in regard of non-disclosure of commissions by distributors? If not, why the need for senseless circulars? And if yes, then why not punish the culprits rather than destroy the whole IFA community.

2) Giving too much information to investors will only confuse them and resist them to take up services of MF distributors wherein they are guided and educated by our community to invest in mutual funds, provide consultancy services of picking up right funds depending on clients investment portfolio, past experience, income profile, life stage, risk profile, investment horizon, doing portfolio review and rebalancing, guiding the client in difficult times etc. Does SEBI think that such services are free in nature and IFA as a community should not be there in the first place? Let them reply in plain terms if distributors are required or not in the industry.

3) The move will be inducing pass back culture which only established distributors and big banks can afford. No more new distributors to join the industry. What happened to the idea of Skill India? What happened to idea of self sustainable employment generation for educated youth in India? Are we happy with less than 10000 active distributors in a country of more than 125 crore people? How does SEBI encourage new and professionally educated persons to join the industry?

4) Why doesn’t SEBI make it mandatory to disclose commissions across products like structured products, PMS (upto 4-6%), private equity (up to 4-6%), insurance plans (up to 50%) 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. Why the regulators are biased against the Mutual Funds distributors only. Also, all industry depends on commissions to selling agents, even a bottle of shampoo sold in India, commissions are paid to distributors and retailers. Do they disclose their commissions in the bill provided to clients. Then why on mutual fund commissions? Smells of rat.


5) There is already a provision of Direct Mutual Funds Plans in all categories for educated and well heeled investors who have high financial literacy and do not wish to take services of a distributor. Also, distributor’s income and commissions are capped through various provisions including maximum expense ratio of fund, capping on upfront commission etc. Then what is the purpose of such a disclosure to investors who have been educated and served over the years by distributors. Does the regulator considers distributors to be only taking up the service of educating and bringing new clients to the industry only to be grabbed up by direct plans lure in future. How does the regulator ensure continued income to distributors for their efforts to educate and bring the clients to the mutual fund industry?

6) The angle of corruption in SEBI board and officials is to be also checked. Its highly likely that the SEBI board, officials and chairman are bribed by big banks and AMC’s who want to get rid of the distributors which are their direct competition. That way they will start enjoying monopoly in mutual fund distribution. All at the expense of the investors and distributor community. Assets and liabilities of all SEBI officials, board members and chairman should be scrutinized by IB and concerned authorities.

SEBI as an industry regulator is acting with malaise and partiality against the distributor community on the behest of the large corporate distributors and banks.

We request you sir to look into the issue seriously and have all angles of SEBI circular being checked. We demand that this SEBI circular on commission disclosure be rolled back asap and no one should be allowed to destroy a budding industry and take away hard earned income of hard working people of India and also not to create disruptions in the market place in the name of investor protection.



I have written the above letter to the Prime Minister and President of India online grievance mechanism. All IFA can copy / change language as they deem fit and proper and write to the PM and President.
10 mins task. Pls do not hesitate. Let 1000 compliants reach the office of the PM and President and they force SEBI to withdraw this circular.
pgportal.gov.in- PM portal

I THINK '' SEBI'S NEED A REGULATOR.