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The tussle to discontinue upfront commission and switch over to the trail model has revived hopes of forming a self-regulatory organisation under United Forum, an umbrella body of about six mutual fund distributor associations.
SEBI’s attempts in the last three years to form an SRO for distributors had failed, as it could not get the scattered independent financial advisors on one platform. However, implementation of trail-based commission by the Association of Mutual Funds in India without any regulatory powers has put distributors in a quandary. This apart, the levy of service tax on MF distributors has also played a role in getting them together.
Rajiv Bajaj, Vice-Chairman and Managing Director, Bajaj Capital, said the responsibility to implement trail-based commission has been forced on AMFI and it is doing a part-time job.
Two forums so far“I believe with various distributor associations coming together under one body for the first time — it is the right time to form an SRO for distributors and give it adequate powers to implement trail-based commission which is going to be a painful process for the industry in the next two to three years,” he said. The Foundation of Independent Financial Advisors (FIFA) has managed to get about six independent financial advisor associations under the United Forum. There are over 20 associations of IFAs and financial planners across India.
Apart from FIFA, one more umbrella body, Voice of Mutual Fund Distributors (VMFD), has roped in seven IFA associations.
VMFD members include All Kerala IFA Association, Association of Professional Individual Financial Advisor (Andhra Pradesh), Ask Circle (Kolkata), IFA Galaxy (Chennai), Independent Financial Professional Association — Tamil Nadu, Karnataka Association of Mutual Fund Advisors and Pondicherry IFA Association (Puducherry).
The new commission model could be a stumbling block for new entrants in the distribution business as the breakeven period will be stretched to five years from two years. In a way, this will also pose a challenge to MF penetration and impact SEBI’s aim of attracting MF investors from ‘beyond top 15’ cities.
“The initial period of newcomers in mutual fund distribution is going to be difficult. They have to come with long-term vision of five years with the ability to sustain on their own for three years. We may even see some angel investor funding in wealth management business,” said Bajaj.
It is also important for SEBI not to change regulations mid-way so that distributors can plan their investments properly for the long term, he added.
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