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Ankit Patel (23), a Lucknow-based mutual fund (MF) advisor, is worried about the prospects of his advisory business if the commission he gets has to be disclosed in the monthly account statements given to investors. According to him, it's hard to convince new investors about mutual funds as an investment product. “If investors get to know my commission, they might discontinue investments with me or ask for a share of it,” he says.
His apprehensions come in the wake of the Securities and Exchange Board of India (Sebi) asking the Association of Mutual Funds in India (Amfi) about fund houses’ view on disclosing distributors' commission in investors' account statement to further increase transparency.
Patel's views are echoed by many in the sector. Most fund houses are not in favour of any such move. They say it will impact distributors as well as independent financial advisors, who are considered the foot soldiers of the sector. This, they say, will have a negative impact on the sector.
In its letter to Sebi, Amfi has written that the mutual fund sector is not yet ready for this move. It added that if disclosures were to be made at all, it should be 'relevant' disclosures like what fees the asset management company (AMC) should charge investors in a scheme.
“If the regulator mandates it, we have no other option but to follow it in letter and spirit. But, the question is, what is it going to achieve? Transparency can't be at the cost of sector's growth,” says a CEO, who did not wish to be named.
Customer acquisition comes at a high cost and if the customer is a new entrant to the sector, costs are even higher. “Who pays the initial costs? It's the distributors. And, if I do not come to help him, why would he work for me or the industry? I can't compensate him the way I want now-a-days - upfront is capped, initial trail is not enough to keep the distributor running and now on top of it, the distributor has to disclose his commission to investors,” said an industry official.
Sundeep Sikka, CEO of Reliance Mutual Fund, said in his tweet: “Relevant disclosures are good. Disclosing commission on account statement (is) not the solution but important to disclose total expense charged by MF schemes."
Many in the sector agree with this stand. Such disclosures will let investors know the total fees they are charged for their investment. “This will help investors understand that it's the AMC which is charging them and it is up to the fund house how much it pays to the distributors," says the CEO of a mid-sized fund house.
However, some others say there is no need for such disclosures at this moment. “The penetration of MFs stand nowhere compared with banking or insurance products. Despite the past two years of robust inflows, the fact is we continue to be in a business of financial products, which need to be pushed. Bombarding the investors at the very beginning with such disclosures will not be a win-win situation for anyone.”
Sebi has not put its observations back to Amfi on the matter.
COMMISSION DISCLOSURE: ANOTHER TROUBLE BREWING FOR MFs
- Commission disclosures in a/c statements make MF sector jittery
- Distributors fear the move may impact their business
- Sector officials say transparency can't be at the cost of industry's growth
- They bat for relevant disclosures like total expense ratio (TER)
- Currently, upfront is capped at 1 per cent
- Amfi tells Sebi industry not yet ready for commission disclosure
- Sebi is yet to give its observation on Amfi's letter
