SEBI proposes all-trail model for PMS distributors

By Ravi Samalad |  05-08-19 | 
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Ravi Samalad is Assistant Manager - Editoral for

A seven-member SEBI-appointed committee for reviewing Portfolio Manager Regulations has proposed enhanced performance reporting norms for PMS players, raised the net worth criteria and proposed to move the commission structure to all-trail model for distributors.

Here are some of the key proposals for distributors and PMS players.

Distributor Proposals

  • Common minimum qualification criteria mandated for distributors to sell PMS. Until a new PMS exam is established, PMS players will have to sell their products only through distributors having AMFI ARN or those have cleared NISM Mutual Fund exam.
  • Commissions to be paid only in the form of trail and only from the fees charged by the portfolio manager.
  • Distributors have to disclose their fees/commission to the prospective clients.
  • Distributors have to provide an annual self-declaration stating that they have not indulged in mis-selling.

Industry Proposals

  • Exit load to be capped at 3% for the first year. No exit load for investments redeemed after three years.
  • Minimum net worth to be raised from Rs 2 crore to Rs 5 crore. Existing players will have to raise the net worth within one year after the rules come into effect.
  • Minimum ticket size of investment to be raised from the current Rs 25 lakh to Rs 50 lakh.
  • Returns to be calculated using time-weighted rate of return (TWRR) and all cash and all investments in liquid funds to be mandatorily included. Performance has to be reported net of all fees, all expenses and taxes.
  • The portfolio manager should not invest client’s fund based on the advice of another portfolio manager, investment adviser or any other registered intermediary.
  • Performance fee should be charged on “without catch-up” basis, i.e. only on the amount over and above a hurdle rate.

Impact on Industry and Distribution

Currently, PMS players offer upfront commissions which goes up to 7%. Such commission structure provides incentive to distributors to push products. Advisers have to work towards client interest. Moving to all-trail model is good for the client and the adviser. Raising the minimum net ticket size from Rs 25 lakh to Rs 50 lakh will impact retail advisers. Large distributors catering to high net worth clients won’t be impacted. The regulations are aimed at bringing level playing field for distributing mutual funds and PMS which is good for the industry. - Rishiraj Maheshwari, Founder, RISCH Wealth Management.

After the recent changes in mutual funds, SEBI had alluded to the industry that similar reforms will come in PMS. So market has already prepared for it. Most PMS providers who have decent assets under management can meet the net worth criteria of Rs 5 crore. Since the industry has to move from upfront to trail model, there could be a temporary slowdown in business as players have to adapt to the new rules. Raising the minimum net worth criteria to Rs 5 crore can increase entry barriers for new players. – Vinod Jain, Founder, Jain Investment.

SEBI has invited suggestions on the proposed rules by August 30 at

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