I am having an aum of Rs. 50 lakhs with one particular amc.But i am receiving paltry Rs.1500 per month which works out to less than 0.25 percent . I am arguing with them several times to raise trail for my existing asset which are more than 5 to 7 years old. Amc s are cheating the distributors .Earlier the upfront paid by the amc is after deducting from investor investment. Because of raising cost escalation how to service clients with this paltry amount.Should the regulator interfere and come to the rescue of distributors.

No wonder that fund houses are willing to pay 2.6% upfront in B-15 locations in only the first year. After all they can save a lot by avoiding 1.75% to 2.5% perpetual trail to B-15 IFAs. It is easy to understand now why fund houses don’t give only trail to all the distributors especially for those in B-15 locations .

I too agree with the view that 1.75% perpetual trail is possible for B-15 locations if upfront commissions are banned. Doing an "upfront+trail" vs "only trail" calculation based on 1% trail that is paid in T-15, completely ignoring the B-15 incentive allowed by the regulator, is not the correct way and is unfair

Its hereby not understood to us why all AMCs are hesitating go offer ONLY TRAIL MODEL Brokerage with minimum of 1% from day one till perpetual, which is quite advantageous to AMCs as well as IFAs despite of our request since last couple of years... Even SEBI have heard of our voices. AMCs continuous silence on made us to believe that they prefer BANKs to us as majority of their business are coming from banks only but latter is only spoiling markets by duping customers through mis-selling. May I request regulators to impose complete ban on upfront and launch ONLY TRAIL MODEL brokerage...???

I would also like to highlight whichever distributor brings in new clients (fresh KYC) to the mutual fund industry, should be rewarded separately apart from the brokerage structure (either trial (or) upfront). After lot of discussions and examples, a new client is coming to the industry and the efforts put in by the distributor community is unnoticed and asking the investor to pay the fee who is a new KYC customer is also practically unviable as he makes up his mind to open with the thought of investing through mutual funds towards wealth creation/asset allocation. Let us have this implemented at the earliest, which will also result in new customer additions and thereby enhancing growth in the industry. If a distributor only sells mutual fund which happens to be his core business, then upfront and trial needs to coexist in the 1st year itself. May be, for experienced distributors (in the system for more than 5 years with 10 crore of AUM can think of all trial model).

I agree with Mr.Sam Koshy that If we are paid even half of whatever is collected as B-15 incentive, meaning 0.15% x 5 (if B-15 AUM 20% total AUM is 5 times this ) minimum trail possible in B-15 locations is 1.0% +0.75% = 1.75%.  If the complete B-15 incentive is paid to the distributors the perpetual trail should be 2.5% for B-15 locations. This trail of 2.5% is only possible when upfront commissions are banned.

I buy the idea of Mr Vijay Venkatram and all trail model.

A THOUGHT PROVOKING ARTICLE.IT IS A DAMPENER TO THOSE WHO WANT TO SELL AT THE EXPENSE OF THE INVESTORS.BY MAKING HUGE BUCK BY UPFRONT COMMISSIONS THEY ARE KILLING THE GOOSE LAYING GOLDEN EGGS

Regulators pay and perks must be linked to their performance , if frequent U turns , instability ,no awareness /penetration of industry etc can be criteria for action against regulators or stake holders There must be claw back of pay from regulators and ex- regulators officials if rules are changed [churned] frequently.regulators must go into shoes of investors and distributors must invest in mf every year and disclose it , must canvas 15 applications of mutual fund like distributor in Remote 15 locations where mf penetration is low and no POS ,then they will be in better position to do their job

, No bank should be allow to sell mf unless they have different set -up and qualified staff dedicated for wealth management Direct plan must not have different NAV additional expense ratio can be utilized for investor education , investor must pass nism investor module if want to do direct investment like driving license .Everyone has right to earn and earn on professional performance No one should get in state of complacency, performance must be criteria for return for everyone , including investor, distributors,amc, and regulators,

I suggest provision of LOCK SYSTEM for investment if sebi has noble idea of long term investment then in common application it should be mentioned e.g. 3 yrs/ 5yrs/ etc lock in investor cant not redeem before what he has mentioned in form, he can switch from one fund to other of same AMC or other AMC one arn to other arn, no upfront at switch , only trail and only lesser among two AMC will be paid to distributor , if investor wants to redeem before lock period surrender charges equal to lock in period * expense ratio [not more than 5yrs] released to AMC and distributors periodically , it can be parked in amc protection fund and distributors protection fund , Then asset allocation theories etc can be implemented in better way it is win -win for all ,investor will be long term investor unlike trader, AMC will have to depend on performance not on upfront , distributors will have job security ,

PART 1:::I know no complaint from investor or investor community against upfront commission and churning ,even if they are irrelevant when direct plans and claw back mechanism is in place .upfront and trail have different objectives can not be merged into one .

Anybody who wants to get an excel calculation about the "loss due to upfront model" may pls mail me FROM THEIR AMFI REGISTERED EMAIL ID mentioning their ARN number to(samkoshy.cc@gmail.com).

We all know that in trail only model fund houses are paying a commission that is around 1.0% in T-15. If we are paid even half of whatever is collected as B-15 incentive, meaning 0.15% x 5 (if B-15 AUM 20% total AUM is 5 times this ) minimum trail possible in B-15 locations is 1.0% +0.75% = 1.75%. We all know that upfront commissions can be changed anytime. In such a scenario shall we forego 1.75% trail that should have been legally ours(and which is mostly being pocketed by AMCs) for the sake of not so guaranteed upfront commission?

Upfront commissions have always been used as a temptation to divert the attention of a distributor from the trail commissions. Major fund houses on an average have 20% of their AUM from B-15 and are charging the extra 0.3% on the entire AUM, which is allowed by SEBI to compensate B-15 distributors

In order to avoid churning for getting upfront, I have a suggestion. Amount switched from Equity Fund to liquid fund and then from liquid fund to another equity fund within a period of 3 months shall not be paid upfront for the new equity fund

Agreed. Great idea.

1%trail commision is ok no upfront commision reqwaird

I object to the calculations, which makes the logic irrelevant. MFs pay about 1.20 %, not 2.60%, for the first year plus first year trail to IFAs, so what is the basis for this calculation ? AUMs for Rs. 10 crores are not normal for most IFAs. One cannot use brokerage for national distributors and justify the case for IFAs. If Growth commission are considered, would IFAs be penalized for redemptions & drop in AUMs ? As it is, "change is the only constant" is followed to a ridiculous level in the MF industry, with rules changing continuously. Why tinker again, only AMCs will benefit from all trail models. Scandals take place in other markets, nobody is caught or sentenced, but the IFA seems to be always under the microscope. Keep the rules and revenue models unchanged for some years, let the industry grow first, we are anyway insignificant compared to the bank deposit market.

IFAs / small distributors have to ask themselves how many fund houses are giving an option of only trail model that starts at around 1% to even the smallest of distributors? If the only trail option is not being given to all(even after requesting), Why? If only trail that starts around 1% is advantageous to the fund houses would they have shown this resistance to only trail model?

The article seems to assume that all the distributors are getting 2.6% as a first year commission (Upfront + Trail) in all funds. Nothing can be far from truth. Most of the funds pay commissions in the range of 1.2-1.7%(Upfront + Trail) in the first year and around 0.5% trail from the second year onwards.

All trail model is welcome. Vijay has rightly pointed that extravagant commissions paid recently has invited SEBI trouble. AMCs must invest heavily in building TRUST about MF products instead of paying such high commissions. We already have a huge number of Products. There is no need to suddenly bring Close Ended schemes just because the Markets are up and might be beginning of a bull run. Upfront commissions paid for these schemes were way too high.

If the problem is with needless churning then steps must be taken to first stop this churning. Strong deterrents need to be in place. Just tinkering around with few basis points here and there has not helped in the past, and is unlikely to produce desired results.

I do not accept the idea of all trail model. It can be accepted only when all financial products in India are sold on this basis and there is no diferentiation in the rate of commission. Those who are worries for investors should tell whether people buying ULIPs and other products in finance and non finance are not the indian citizens? How much money they are allocating to mutual funds and how much to the other products where they are paying abnormally hihg commissions? There must be an upfront commission plus trail or they should totally abolish distributors and establish branches like banks and sell and service the schemes. They should take decision and continue it at least next 5 years. This will help us to decide whether to work in the industry and shift to something else which is paying more and people are buying. Why should we waste our life in the industry which is not ready to understand the reality.

HI Vijay Just because a model works in several developed markets does it mean that it will necessarily work in India? with our large geographical footprint, will what is OK to a large distributor in MUMBAI or DELHI, be same for a small IFA working in GUWAHATI or any small city or town. Regulators invariably react in panic mode to suggestions given by powerful intermediaries or bow to public(Investor Protection)pressure. There can NEVER be one model that will work for every IFA, it has to be a combination of some upfront and some trail or growth model as suggested by you with an option to go to all trail if desired by the distributor.

Hi Ashish, I completely agree with you that the basis of negotiating the level of trail in an all-trail model should be a ratio of sharing the expenses debited to the scheme, just as it happens in several developed markets. Besides this trail, if we can work on some form of a growth commission to incentivise growth and blunt the negative unintended consequences of a shift to an all trail model, it might help.

Multiple distributor models need to coexist. Smaller, middle larger distributors need to be compensated differently. One on one customisation will be better , the old style of throwing high upfronts and heavy advertising needs to be consigned into the ring of a telephone connection or the key board of a Remington type writer. As Someone who has worked like an ant over 20 years, benefitted clients my team and self from the wealth amcs have created for all stake holders would look forward to serving clients loyally and being remunerated on an expense sharing formulae, doing away with all sales and promotion incentives. Vijay you are a thought leader, this is how it happens at the Top of the Table advisors I have interacted and met at the global conferences over a decade.