The Securities and Exchange Board of India has directed portfolio management service providers to disclose to clients the commission payouts they made to distributors.
Experts say this will bring in more transparency. “From the perspective of clients, it will give them clarity whether the product being sold to them by an advisor or distributor is because of the high commissions or on the product’s merit,” said Kamal Manocha, CEO, PMS AIF World.
As part of the frequently asked questions (FAQs), the market regulator said that PMS players will need to share “details of commission paid to distributor(s) for the particular client”. The FAQs were given by Sebi, following introduction of new norms for the PMS industry, which came into force at the beginning of the year. While the PMS industry is regulated by Sebi, it still advised investors to carefully read the terms of agreement before signing it.
“The services of a portfolio manager are governed by the agreement between the portfolio manager and the investor. The agreement should cover the minimum details as specified in the SebiPortfolio Manager Regulations. However, additional requirements can be specified by the portfolio manager in the agreement with the client,” Sebi said. The markets regulator also clarified on a scenario in which breach of 25-per cent cap for unlisted securities will be considered as non-compliance.
“An active breach due to investor action, subsequent to corporate actions like subscription to rights issue, which results in breach of 25 per cent limit applicable to non-discretionary portfolios, shall be considered as non-compliance.”
However, a passive breach due to corporate actions will not be considered non-compliant. On partial withdrawal by investors, Sebi said investors can make such withdrawals in accordance with terms of agreement with the portfolio manager.