If you thought rebating of commission, or mutual fund agents sharing part of the commission with clients, has come to an end after the entry load ban, you were wrong.
Recently, a financial planning company in a mail correspondence to its clients made a proposal that comes 'close' to sharing commission with its clients.
The company proposes to offer a certain services for free to clients, whose mutual fund investments resulted in commission earnings to the company over and above an agreed percentage.
The email correspondence explains the 'scheme' in the following manner: "If you have purchased Rs 5 lakh of mutual funds from us, we believe we should be paid 0.5% per annum as our fee. This translates to Rs 2,500. However, if we have earned Rs 2,800 as commissions from you in any financial year, this means that we owe you Rs 300. You can use this credit of Rs 300 to subscribe to any of our other services. For example, Rs 300 will allow you to get a free one-month subscription of our premium mutual fund research product, without paying any additional amount."
This offer apparently has not gone down well with some independent financial advisors (IFAs), who have lodged a complaint against the company calling the offer a violation of Amfi (Association of Mutual Funds in India) guidelines.
According to Amfi guidelines, "Intermediaries should not rebate commission back to investors and avoid attracting clients through temptation of rebate/gifts etc." Acting on the complaints of the IFAs, Amfi had shot a letter to the distributor asking it to explain its proposal to investors. In its letter to the company, Amfi says, "It has been brought to our notice an email correspondence you had sent to investors titled Pay us, don't bribe us. From the contents of the letter we understand that you shall be parting with the commission received over and above an agreed percentage to the investor by way of subscription to your services."
The mutual fund body, therefore, asks the distributor "to explain as to why action should not be taken against you for the violation of code of conduct prescribed."
In its letter to Amfi, the company explains, "We are not going to refund any commission amount to the clients. As mentioned in the mail correspondence, the investors can opt for our fee-based services in lieu of any excess balances that they might have with us.
