MF agents flout SEBI rule on sub-brokers

Self-styled distributors, lacking basic qualifications to sell mutual fund units are advising investors as to where they should put their hard-earned money. Distributors need to pass the Amfi Advisors’ Module if they want to sell mutual fund schemes to investors.

If industry officials are to be believed, top national distributors, who sell investment products across asset classes, are not insisting on Amfi certification while appointing sub-brokers (sub-advisors or franchisees). This is more prevalent in franchisees or sub-broker offices in tier-II and tier-III cities, according to sources.

“Top distributors simply ask for a small membership fee at the time of empanelling as a sub-broker. They are not really concerned about Amfi registration or any certification. The sole criterion is how many investors you can bring into the branch,” said a fund industry source. These distributors are allowed to sell products across asset classes, from equity mutual funds to ULIPs, corporate deposits and even Nabard bonds on certain occasion.

For mutual funds, market regulator Sebi has made it mandatory for distributors to pass certification test (advisors module) and obtain registration number from Amfi. Institutions selling mutual funds have also been directed to enlist only certified advisors or product sellers. Insurance regulator IRDA also mandates advisors, including ULIP sellers, to pass the agents’ test before selling indemnity/investment products. Large-sized distributors are squarely flouting these rules while taking in sub-advisors.

The way to becoming an advisor, without taking Amfi advisors’ module test, is very simple. The aspiring advisor can just walk in to the branch of a national distributor, meet the area manager or business development head, and let them know his plan to become a mutual fund advisor. If the aspirant is well net-worked to bring in a few lakhs of rupees as investments (in mutual funds and ULIPs), branch officials collect a joining fee and hands out products to sell. If the newly-inducted sub-broker pays a higher fee, he is also allowed to use portfolio management software and product terminals owned by the distributor.

“We can only check the credentials of independent financial advisors (IFAs); it is impossible to check the certification of employees or sub-advisors empanelled with large distributors. We’ll have to go by their declaration that all advisors working for them are compliant to sell mutual funds,” said the channel head of a corporate-promoted fund house.

While fund houses are aware of this trend, they are not really worried about it. According to them, Amfi advisors’ module syllabus is outdated — sources say the syllabus was last updated in mid-2006 — and could slightly out of context, considering the large number of changes effected to mutual fund industry post-2008.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/MF-agents-flout-SEBI-rule-on-sub-brokers/articleshow/5910921.cms