Fund houses consider different options as they seek to build consensus over the sensitive issue of distributor commission.
Mutual fund houses are mulling over doing away with upfront commissions in a phased manner, though so far unanimity continues to elude the industry.
“We want to move to a zero upfront regime in a phased manner, by capping it a certain percentage initially. There are two schools of thoughts within AMFI. Once we arrive at a consensus, we will take it forward. There are strong views both for and against banning upfront commission,” says a marketing head of a foreign fund house.
There are three options being considered:
1. Each AMC to decide its own upfront commission (status quo)
2. Abolish upfront and hike trail linked to stickiness of assets
3. Higher upfront for business of up to Rs. 5 lakh or higher trail commission (no upfront) for business of more than Rs. 5 lakh
Some are of the view that the ‘pricing’ or upfront commission should be best left for AMCs to decide.
However, a few others believe paying higher trail commissions is a win-win situation for both AMCs and distributors – distributors will not churn portfolios while AMCs are assured of long term assets. A higher trail (with no upfront) for big distributors like banks and NDs will help them generate enough cash flows to run their business. But this model doesn’t work well for IFAs bringing in small ticket applications.
The debate over IFAs inability to charge fees from clients still continues. Some of them have made the transition, while others are yet to find a way to get a separate cheque from clients. Distributors, especially financial planners, mainly rely on fee income, apart from the trail, thus having little to worry about upfront payouts. Some distributors charge a percentage fee based on AUM or a fixed upfront fee.
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IFA Galaxy
7 comments:
I Prefere More trail and abolish Upfront
It's better to completely abolish upfront commission and increase trail.
i prefer lower upfront and higher trail lower upfront is required to meet basic expenses to serve client as we never know when clinet will exit from the fund and if exits early and we are not paid lower up front then it becomes a free service to client as at present very very few advisor are able to charge their client
bhavesh vora
It good to lower upfront and higher trail it good for long term .
vinay singh
Whatever we say, there is still substantial amount of churning that is happening based on the up-frontcommission.
The major issue with this is, more often than not the funds paying higher up-fronts are poor in their track record and this is killing the confidence of Enthusiastic people who want to try out Mutual Funds.
In all probability they are running away forever (long term loss for the industry- with a lot of negative publicity).
I am able to convince my clients and charging them a fee.
We have a right choose a client and obviously we can refuse a client who doesn’t pay, rather going for a sub-optimal fund and make the client lose plenty more than what he would have paid us.
I would rather have a trail of 1%(constant across the fund houses), with all the up front commissions and other incentives removed, as that would be in the interest of everyone including client.
Let us be confident and ask for a fee, which is our right. Let us adopt a fee based model which is sustainable in the longer run as the regulator is indicating clearly that, that is the only way forward.
No point in fighting with the regulator.
High Trail is the BEST way to keep both the distributor as well as the AMC happy.
go for it.
A.Senthil Trichy
I Perfer Low Upfront and More Trail.
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