MF Distributors Approach Sat Over SEBI’s Direction On Commissions Disclosure
Mutual fund distributors have approached the Securities Appellate Tribunal (SAT) against the regulator’s direction to disclose the commission received from every individual investor, three people familiar with the development said.
“Distributors, represented by United Forum of distributors, have challenged Sebi’s (Securities and Exchange Board of India’s) circular on folio-wise disclosure of commission or disclosure of commission paid for every individual investor, in SAT,†said one of the three people cited above. He declined to be named. “Sebi has been asked to file a reply in four weeks, explaining why the circular is in the interests of the market.â€
In March, Sebi issued a circular directing distributors to disclose the commission they earned on every individual investment—on a half-yearly basis—in half-yearly common account statement (CAS), in absolute terms.
Distributors said the rule will discourage them and sought the finance ministry’s intervention on the matter.
“How much commission a distributor can earn on investments is regulated. This disclosure of folio-wise disclosure of commission can essentially incentivize investors to seek a kickback,†the second person said, requesting anonymity.
“This can be counterproductive to the Sebi drive for transparency and curbing misselling,†he added.
The United Forum is an association of about 45 mutual fund distributor associations from across the country. The United Forum was formed after the meeting of various associations on 30 June in Mumbai.
Even though the United Forum has approached SAT, not all distributor associations are part of this complaint.
“Only about 15-20 associations have gone ahead with the complaint. The remaining have chosen not to, mostly because they don’t want to take on the regulator,†a distributor said, requesting anonymity.
The other reason for lack of unanimous participation against the regulator’s circular is that not all distributors seem to be convinced that going to SAT will help.
One of the distributors Mint spoke to was quick to point that all distributors are supposed to declare commissions they make on schemes they sell, versus the commissions that other competing schemes offer, to their investors already. As per a Sebi circular dated 39 June, 2009 (the same circular that abolished entry loads), mutual fund distributors are meant to disclose commissions (“…in the form of trail commission or any other mode…â€) to their investors.
“Every mutual fund distributor is mandated to fill an undertaking (in a uniform and prescribed format) to their registrar and transfer agent, that she has disclosed the commissions she earns to her investors, which also is part of the official code of conduct. SAT would ask them that if they have already been disclosing to their investors, what are they hesitating now for?†he said.