Mumbai: In a revision to a guideline it had issued about three weeks ago, the Association of Mutual Funds of India, the mutual fund industry’s trade body, has now asked all fund houses to give details of investors who invest in mutual funds (MF) through the direct plan to only those investment advisors who are registered with the capital market regulator, Securities and Exchange Board of India.
In a letter that Amfi sent out to all fund houses about two days ago, it said that any distributor who is not a Sebi-registered investment advisor should not be given details of their clients who invest through the direct plan. Mint has reviewed the letter.
On 26 November, Amfi had told to fund houses that all distributors and independent financial advisors can get access of their clients’ direct MF investments, if their clients give a written consent. Although it had sought Sebi’s consent before making this move, Sebi wasn’t too happy when Amfi’s circular finally came out. Sebi contended that it had given the permission for the benefit of only Sebi-registered investment advisors (who charge a fee), and not to all distributors.
“It had taken Amfi almost a year to convince Sebi to allow direct feeds to distributors. Finally, Sebi allowed it, but there was a misunderstanding. Amfi has promptly corrected that with a new circular”, said Sundeep Sikka, chief executive officer, Reliance Capital Asset Management Co. Ltd.
In January 2013, Sebi had asked fund houses to offer direct plans to investors. Typically, a direct plan appeals to those who have knowledge about MFs, knows where to invest, can decipher funds and would therefore wish to avoid paying distributor commission. It does not have distributor’s cost embedded in it unlike a normal plan, and is therefore, cheaper.
Financial planners and Sebi-registered investment advisors—those who charge clients a fee—also found direct plans attractive. Since they charge clients a fee, many of them prefer to invest their clients’ corpuses in direct plans to help them reduce costs. But a direct plan application does not carry a distributor code. In other words, it was not tagged to a distributor or an advisor and hence for an advisor to monitor such investments (by getting the fund houses to share these details with them) became a problem. Sharing details of such clients with their distributors help advisors to lower costs for their clients and typically demonstrate the value that they could bring on the table.
“The non-registered investment advisor (RIA) will need some compensation for the efforts and services, however limited or incidental advice she gives. If the client is going to compensate the non-RIA, then it will be deemed as ‘fees’. And for getting ‘fees’, a distributor has to be a SEBI-registered investment advisor (as per the Sebi Investment Advisor guidelines). So, with this move, AMFI is sticking to the script”, says N. Vishwanath, founder & chief executive officer, Blue Ocean Financial Services Pvt. Ltd, a Sebi-registered investment advisory firm.
A large section of distributors does not appear to be happy at being left out. “Who’s money are we talking about here? It is the client’s money. Sebi or Amfi should not dictate as to who can or cannot get to see their client’s details. If the investor does not have a problem (in giving consent, if she so chooses to), then Sebi and Amfi should not have a problem”, says Ashish Shah, founder of Wealth-First, an Ahmedabad-based distribution firm of financial products. Shah says that if distributors are allowed to give direct feeds, they can choose to channelize a chunk of their clients’ savings through normal plans that earn them commission (to the extent that it covers their expenses and earn them a ‘decent income’) and then put the rest of their client’s money in direct plans.
