The Mutual Fund Advisory Committee (MFAC) has suggested to SEBI (Securities and Exchange Board of India) to reduce the ARN registration fee for distributors. According to the MFAC, current registration fee is restricting the advisors to join the industry, particularly from tier-II and tier-III cities.
The ARN renewal fee was increased from Rs. 250 to Rs. 2,500 for individuals and corporate employees from 1 June 2010. Individuals seeking new ARN license have to spend more. The fee was hiked across the board for all categories of distributors like banks, post offices, partnership firms, etc. AMFI had also reduced the validity period of ARN license from five years to three years.
Anil Rego, CEO & founder, Right Horizons, said, “The hike in fee has certainly increased the cost of registration for individuals and corporate distributors. The proposed hike in fees has come at a time when the overall market sentiment has been adversely impacted and volumes have dried up. However, the move may also eliminate non-serious distributors from the race and only ones which are serious about continuing the operations would renew their registration.”
A reduction of fee from the one existing is a welcome move. A fee—which is reasonable and encourages serious participants to carry on the business—is highly recommended at a time when overall market conditions are weak, Mr Rego added.
Pankaaj Maalde, head-financial planning, ApnaPaisa.com, pointed out, “The hike in registration fees from Rs. 250 to Rs. 2,500 came at the time when distributors were finding it difficult to survive. On one side, market was more volatile and we had lot of bad news coming from the US and European markets. On the other hand, upfront commissions came down due to no entry load. The proposed hike in ARN renewal fee is not only high and but has also come at the wrong time. It needs to be reviewed and rightly suggested by MFAC. The reduction in ARN renewal fee will not attract more distributors immediately but it will surely result in renewal of existing distributors who still would like to continue and canvas the MF business.”
According to Bhavin Shah, managing director, Sapphire Wealth, “The reduction in ARN fees may not attract more distributors but will at least incentivise the current distributors to continue their renewal. The MF industry is suffering as the income model of distributors has been destroyed without a replacement. The current incentive earned by distributors is not enough to justify the service that has to be provided. To benefit the public at large the amount of incentive to distributors was curtailed so unnecessary churning was avoided.”
Mr Shah further said, “Though this is a welcome move on the part of SEBI, the current situation is such that the MF industry is facing a tough time on account of the market conditions and the distributor channel has been badly hampered. With the geographic size of a country like India and the developing banking reach the role of the distributor is crucial in garnering funds.”
Mr Maalde added, “It is also important to reduce CPE (Continuing Professional Education) fees. NISM increased CPE fees from Rs. 1,500 to Rs. 3,400 from 1 June 2012. Previously one has to attend one-day training program for renewal which is now increased to two days. The hike in CPE fees should also be reviewed as it is unlikely to benefit the industry.”
“SEBI needs to find a way for genuine distributors to be able to earn their rightful incentive while curbing the malpractice of churning. As of now the move of curtailing the MF incentive has only pushed the MF industry back by a few years and hampered its growth,” highlighted Mr Shah.