Life is uncertain. The on-going Coronavirus or COVID-19 pandemic has proved this old saying dead right. The deadly pathogen has made no discrimination between rich and poor.

What if a mutual fund advisor passes away during the pandemic situation or otherwise? Who will look after the client’s investments?

These might sound like odd questions, but surely are circumstantially relevant ones in such uncertainty and stressful times.

According to the Association of Mutual Funds in India (AMFI), the nominee/legal heir of the deceased mutual fund distributor can service you after the completion of formalities.

AMFI has categorically mentioned circumstances under which the business can be transferred from one distributor to the other. They include…

  • Change in the name / legal status of the distributor, such as an individual mutual fund distributor converting his/her distribution business to a partnership firm, a partnership firm converting itself into Limited Liability Partnership (LLP), a private limited company converting itself into a public limited company or vice Versa.
  • Mergers / acquisitions / consolidation of business / transfer of business / demergers / dissolution of business / change in partnership firms or LLP / new code acquired by the distributors (ARN Holders).
  • Transfer of Assets Under Management (AUM) of an ARN Holder acting as a sub-distributor under a principal ARN Holder, provided the entire AUM of the sub-distributor is being transferred out. Both the sub-distributor and principal ARN Holder need to certify to the AMC that the entire AUM of the sub-distributor is being transferred.

When a mutual fund distributor passes away, changing the distributor is possible and it will be treated as a transfer of business (to a nominee/legal heir upon death of deceased ARN holders subject to certain formalities).

What are the pre-conditions for the transfer of business upon the death of a mutual fund distributor?

  • On the day of the demise of the distributor, his/her ARN was in force and his/her commissions weren’t suspended for any reason whatsoever at the time of demise.
  • The nominee/legal heir requesting the transfer of the business of the deceased distributor should have a valid ARN and should be KYD compliant. Further, he/she should submit an annual declaration(s) of self-certification (where applicable) due as on the date of the request for transfer of Assets Under Management (AUM). His/her ARN too should not have been suspended for any reason.
  • Only the assets garnered before the demise of the distributor (when his/her ARN was valid) can be transferred.
  • Nominee/legal heir must submit an application requesting cancellation of ARN of the deceased distributor to CAMS within six months, along with a copy of death certificate of the deceased distributor (duly attested by a Notary or by a gazette officer) and the ARN card of the deceased distributor.
  • After receiving the confirmation from CAMS, having noted the demise of the deceased distributor and having cancelled his/her ARN, the nominee/legal heir needs to approach the individual Asset Management Companies (AMCs) with whom the deceased distributor was empanelled and make an application for transfer of AUM of the deceased the distributor to the ARN of the nominee/ legal heir.
  • The nominee/legal heir must establish a written correspondence notifying all the clients of the deceased distributor about the proposed changed in the ARN code, the reason for it, along with all the detail of new distributor who will be serving them. They should be given an option to choose another distributor as well. If no objection is raised (to the change in ARN) within 15 days of nominee distributor’s request for such transfer, Asset Management Companies (AMCs) incorporate change in the ARN code.

Recently, AMFI revised these guidelines to simplify the process of change of distributor to make life easy for both—investors and distributors. Previously, the process was cumbersome.

In the case of change of distributor on account of the death of a distributor, the old guidelines required the nominee/legal heir of the deceased distributor to get written consent from all the existing clients (irrespective of their city, state, and country). Only upon receiving such consent in writing, the transfer of Assets Under Management (AUM) in the name of the nominee/legal heir of the deceased distributor was possible, which was a challenge for mutual fund distributors.

Time and again, AMFI received representations highlighting the practical difficulties in securing the consent from all the clients in writing, and ultimately the modified guidelines are released by AMFI wherein no objection is considered as the consent to the change in ARN request by the nominee distributor.

Why should investors go through this?

When the client seeks the services of a mutual fund distributor, it is a relationship founded on trust, professionalism, sound guidance, and comfort in the journey of wealth creation. If the distributor has a robust mutual fund setup with a team in place and family members actively involved, clients would consider staying put and continue investing through the deceased distributor’s nominee/legal heirs. It is unlikely that the client would signify his/her dissent from continuing and shift to a completely unknown mutual fund distributor if he/she is satisfied with the service.

On the flip side, say there is no legal heir/nominee to service clients after the demise of the mutual fund advisor; in such a case,there is no option for the client other than to seek the services of a new mutual fund distributor who is knowledgeable, professional and, more importantly, trustworthy. Investors, thus, should employ the services of a mutual fund distributor who has a professional set up, adequate infrastructure and manpower to service clients.

by PersonalFN Content & Research Team

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