The Securities and Exchange Board of India has now restricted the PMS providers commission to customers directly or indirectly.
In a circular, it also restricted the commission of the distributors, who would be allowed to receive only trail commissions. SEBI also started a ‘direct’ option for PMS investors who are not willing to invest through distributors which would not charge them distribution fees.
However, PMS providers can continue to charge annual fees, as a percentage of the investor’s corpus.
The circular after launching of many other regulations that are affecting PMSand were introduced in last few months such as raising the minimum ticket size for PMS from ₹25 lakh to ₹50 lakh. This circular will be effective on 1 May.
“The distribution model of the wealth management industry will probably shift to an advisory model due to these regulatory changes. This might disrupt PMS flows momentarily as MF sale becomes equally attractive to distributors as PMS. Our experience is that transparency faces initial hiccups but ultimately leads to faster growth for any industry, we expect the same for the alternative investment industry,” said Sushant Bhansali, CEO, Ambit Asset Management, a major PMS provider. “With increasing transparency, misselling will temper down and client trust will increase thereby leading to faster industry growth,” he added.
Another PMS Chief Executive expressed his views on the circular. “PMS clients are sophisticated. They are aware of the charges they are paying and the nature of the product. They should not be treated in the same way as mutual fund clients,” he said. The ban on upfront commissions for distributors and the introduction of a direct option has now made the PMS products very much similar to the mutual funds in structure.