SEGREGATION OF TRANSACTION ONLY DISTRIBUTOR AT REMUNERATION - MAKES SERVICE TAX ZERO & GIVES US EQUAL TRAIL WITH THE BIG DISTRIBUTORSNo. of comments:34 Sam Koshy, KOLLAM, 5727 On 08-Jul-20151. We all keep hearing the big distributors “encouraging” us to move towards a fee based model (through motivational classes, interviews etc.,). This is surprising because they expect us to do what they can’t do themselves with years of experience, crores of accumulated AUMs, big client base with established relationships, brand etc., i.e. take fee and survive ( to make up the short fall between around 0.5% trail that a new entrant is normally getting post service tax and what a big distributor gets i.e. around 1.5% trail. We all know that big distributors also get a huge upfront too along with this trail )! Wouldn’t it be fair if both big distributors and small distributors get the same trail (with no up fronts & no other payments in any other form) and then we both start taking fee, based on our quality of advice ? 2. You might be thinking “will it ever be possible?” i.e. “taking equal trail with big distributors”? It will certainly be, if fund houses segregate advisors from transaction only distributors & advisory share class has only one trail. Remember the opt-in & opt-out Circular that SEBI brought in about four years ago?. The circular is precisely for this purpose and the SEBI chairman at the recent CII summit was asking for this very segregation when he said “a person can not be an advisor and a distributor”. 3. One interesting thing the big distributors won’t also be telling us is that because of this lack of segregation we are paying service tax too. Had the transaction only distributor been segregated at remuneration, as the advisor is loyal to the client & serving the client (which is the case with most IFAs), the service tax would have been charged to NAV as is done in fund management charges etc., But, as the the transaction only & big distributors are being protected by saying that there are no advisors and all intermediaries serve AMCs only i.e all of us are distributors only, those of us who follow advisory model too are paying the price, in the form of lack of level playing field in the current regime with no minimum guaranteed income plus the additional burden of service tax. 4. It is important to note that most IFAs, because of their limited but long term relationships fall under advisory category. A transaction only distributor gives no or minimal post sale service & advice, puts in less time, but still is getting higher income than what an advisory based distributor gets through both higher trail & higher upfront, while the advisory based distributors (mostly IFAs) are squeezed out with lower trails. 5. If we observe closely, fund houses are slowly inching back towards 0.5% trail regime (if we consider the service tax Ex: 0.80% trail minus service tax is 0.66% trail ), to pay more to big distributors. There is a possibility that the service tax may become more than 20% with the implementation of GST. Don’t you think it is time we ask for segregation to create a fair play ?