IFAs accuse brokers of eyeing trail commission through MF dematerialisation  

March 15, 2010

 As the assets under management (AUM) transfer business is gaining prominence, an increasing number of mutual fund (MF) distributors are questioning the authenticity of maintaining MF units in dematerialised (demat) form which ultimately leads to change of broker. Independent financial advisors (IFAs) allege that some brokerage firms change the AMFI registration number (ARN) keeping the investor in the dark, due to which IFAs stand to lose the trail commission.

“I highly doubt it. Most of the share brokers don’t have enough knowledge about mutual funds. It’s just another business where they want to expand. Some gullible investors don’t come to know about change of broker unlike high net-worth individuals (HNIs),” said a distributor.

To dematerialise an existing MF scheme, an investor has to open a demat account which is mandatory. Then he needs to attach all physical statements along with the conversion request form and submit it to Karvy, Computer Age Management Services Pvt Ltd (CAMS) or the asset management company (AMC).

“There are no charges for demat account opening. We would be charging not more than Rs300 per year. There is no brokerage for mutual funds. The ARN number would be the same. Your distributor would change only if you want to,” said the official in charge of the process from Nirmal Bang Securities Pvt Ltd, a brokerage firm.

“The ARN number does change. They never say that it’s a change of broker. Sharekhan has a form for the same which changes non-Sharekhan portfolios to Sharekhan folios,” said an IFA.

Nirmal Bang Securities is providing a free demat account. But the online investing platform for MFs increases the cost for the investor, considering the brokerage, account-opening and maintenance charges. Moneylife had earlier reported on how dematerialisation would be a costly option for investors. However, one advantage is that it can do away with the unnecessary paperwork (see here).

Although the demat form of Nirmal Bang nowhere mentions the change of ARN, MF distributors feel otherwise.

“The conversion request form is enough to change the ARN number,” said a Certified Financial Planner (CFP).

An official from a leading fund house says that the ARN number does not change, unless it is approved by the investor.

“There were some vacancies in Nirmal Bang Securities for its mutual funds division but nobody was ready to join them because of the brokerage image. They hire some people for six months and if the project doesn’t takes off, they sack them. Some time back, Reliance Money and Edelweiss MF also sacked people. This is all being done for trail commission,” adds the IFA. — Moneylife Digital Team