If investors are unhappy with their mutual\nfund distributor (for any stated or unstated reason), they find a new one and replace\ntheir existing distributor. That\u2019s the harsh reality. <\/p>\n\n\n\n
In fact, it\u2019s entirely possible that\nsome of your existing clients had issues with their previous mutual fund\ndistributor\/agent. As they say, one\nperson\u2019s loss is another\u2019s gain.<\/em><\/p>\n\n\n\n What\nhappens when an investor initiates a transfer of AUM?<\/strong><\/p>\n\n\n\n The distributor loses a precious client\u2026\n<\/p>\n\n\n\n And as we all know, in today\u2019s world,\nlosing a client is as good as losing a valuable asset. <\/p>\n\n\n\n Nonetheless, when it comes to\ncommissions, the industry\u2019s best practices protect a person or an entity that initially\ngarnered business (built the AUM). Therefore, when investors initiate a change on\ntheir mutual fund distributor, the new distributor gets commissions only on the\nfresh business. This practice discourages one distributor from poaching the clients\nof another. <\/p>\n\n\n\n The Association of Mutual Funds in India (AMFI)<\/a> \u00a0best practice guidelines prohibit AMCs to pay any trail commissions on earlier business to the transferee. The only exception to this rule is when the transfer of AUM happens due to the voluntary cessation of business of an existing mutual fund distributor. <\/p>\n\n\n\n The practice guidelines pertaining to\nchange of distributor code differ depending on who initiates the transfer of\nAUM\u2014investor or the distributor. And if it\u2019 is the distributor, under what\ncircumstances has the change been initiated. <\/p>\n\n\n\n AMFI Best Practice Guidelines Circular 135\/BP\/43\/2013-14<\/a> dated January 22, 2014 deals with topics concerning the transfer of AUM. With changing times AMFI has decided to make some modifications to its best practices guidelines. For this purpose, AMFI released another circular AMFI Best Practices Guidelines Circular 135\/BP\/78\/2018-19<\/a> on\u00a0 March 26, 2019. <\/p>\n\n\n\n The new circular suggests no changes\nin the practices guidelines when investors initiate the transfer of AUM. But,\nAMFI has modified some guidelines when the mutual fund distributor chooses to\ndiscontinue the relationship with the client (under same distributor code) and\nrequest a transfer to another code. <\/p>\n\n\n\n When\na distributor initiates the transfer of AUM\u2026<\/strong><\/p>\n\n\n\n As per the old guidelines, distributors could\ninitiate the transfer of AUM to the online platforms of new distributors. AMFI\nhas modified practice guidelines disallowing such transfers. <\/p>\n\n\n\n In other words, the transfer of AUM on\nrequest of a distributor won\u2019t be affected if the distributor is going to transfer\nAUM to an online platform. Subsequently, the latest AMFI circular excludes\nall guidelines incidental to such transfers. <\/p>\n\n\n\n Hence, now as per the newly revised\nclauses of the AMFI\u2019s best practice guidelines, an existing distributor can\ninitiate change in distributor code (i.e. a new distributor) only in the\nfollowing circumstance:<\/p>\n\n\n\n Further, AMFI best practices\nguidelines state that a request for a change in distributor code may only be\ninitiated by a distributor whose ARN is valid, who is KYD compliant, and has\nfurnished all the self-certification due from him on the date of the request.<\/p>\n\n\n\n The recent circular has offered\nfurther clarification on this point. A distributor who has surrendered his\nvalid ARN to obtain a fresh one can request a change in distributor code provided\nhe applies for the transfer of AUM within six months from the date of\ncancellation of ARN. <\/p>\n\n\n\n The old best practice guidelines accorded\nthe payment of commissions to the transferee (new distributor) only on valid\nassets, i.e. where commissions would have been lawfully payable to the\ntransferor (old distributor). However, such payment of commission on\ntransferred assets could be released only on cancellation of old distributor\u2019s\nARN. <\/p>\n\n\n\n The new circular makes an exception to\nthis, by allowing the payment of commission to the new distributor also when\nthe old distributor becomes a sub-distributor of the new distributor to\nservice clients, and hence retains his\/her ARN. <\/p>\n\n\n\n In all such cases, the trail\ncommissions payable to the new distributor shall be lower of the rates\napplicable to the old distributor and new distributor. <\/p>\n\n\n\n When\nthe transfer of AUM happens due to the voluntary cessation of business of\nexisting distributor\u2026<\/strong><\/p>\n\n\n\n According to the old guidelines, the\nnew distributor, upon voluntary cessation of business of an existing mutual\nfund distributor, was entitled to trail commission on the business done by\nthe old distributor from prospective basis at the same rate at which the commission\nwas paid prior to the transfer of the said asset.<\/p>\n\n\n\n As per the modified best practice\nguidelines, the new distributor shall receive trail commissions on a prospective\nbasis on the business done by the old distributor, at lower of the rates\napplicable to the old distributor and a new distributor after complying\nwith the requisite formalities. This might help AMCs reduce their expense\nratios. <\/p>\n\n\n\n To\nconclude:<\/strong><\/p>\n\n\n\n The modifications in the AMFI Best Practices\nGuidelines offer solutions to the genuine concerns distributors face in the\never-changing business environment. <\/p>\n\n\n\n Instead of focusing on acquiring\nexisting customers of the other mutual fund distributors, it would be sensible\nand more rewarding for mutual fund distributors to acquire new prospects by\nfollowing high fiduciary standards and ethics, which in turn can earn you the\ntrust of investors\/clients and ensure that they don\u2019t shift to another mutual\nfund distributor. <\/p>\n","protected":false},"excerpt":{"rendered":" If investors are unhappy with their mutual fund distributor (for any stated or unstated reason), they find a new one and replace their existing distributor. That\u2019s the harsh reality. In fact, it\u2019s entirely possible that some of your existing clients had issues with their previous mutual fund distributor\/agent. As they say, one person\u2019s loss is…<\/p>\n","protected":false},"author":3,"featured_media":139,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"cybocfi_hide_featured_image":""},"categories":[3],"tags":[],"_links":{"self":[{"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/posts\/138"}],"collection":[{"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/comments?post=138"}],"version-history":[{"count":1,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/posts\/138\/revisions"}],"predecessor-version":[{"id":140,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/posts\/138\/revisions\/140"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/media\/139"}],"wp:attachment":[{"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/media?parent=138"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/categories?post=138"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/tags?post=138"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}