AMFI issued a Warning regarding Sales Incentives for Mutual Fund Distributors
The Association of Mutual Funds (AMFI) in India has issued another warning to its members to stop offering rewards like foreign trips to distributors to boost sales. This marks the second warning from AMFI this year.
Previous Warnings
In January, AMFI issued an advisory to Asset Management Companies (AMCs) and mutual fund distributors (MFDs) against running contests that reward sales efforts with trips. This advisory was updated in March 2024. However, AMFI noticed that despite clear guidelines some distributors continued to offer foreign trips disguised as training programs for top-performing sub-distributors.
Misuse of Guidelines
Reports surfaced that some mutual fund companies were conducting “training programs” in exotic locations like Andaman and Nicobar Islands for distributors who achieved specific sales targets. AMFI stated that members were abusing flexibility meant for recognizing employee performance across various financial products.
Updated Guidelines
AMFI has issued a new letter to AMCs and MFDs following SEBI’s guidance, to revise guidelines:
1. AMCs and MFDs are forbidden from paying any commission that can be interpreted as an upfront commission. They are only allowed to pay trial commissions. This ongoing commission must go to sub-distributors. It must be in monetary terms not as trips or gifts.
2. All trail commissions must be disclosed on AMC’s website and in Half-Yearly Consolidated Account Statements CAS.
Ban on Incentives
AMCs and MFDs are instructed not to offer any incentives for meeting sales targets. This includes gifts, vouchers, electronic gadgets or entertainment items. They are also prohibited from running contests or incentive programs. Such actions promote specific mutual fund schemes. This could lead to mis-selling.
Allowed Training Programs
While AMCs and MFDs can provide training to distributors to improve knowledge and skills. These programs should not be used to give rewards. Criteria for selecting participants for these training programs should not be based on sales targets. They should not rely on loyalty programs.
Location Restrictions for Training Programs
If travel is required for training programs, they should be held in central convenient locations within India, not in exotic tourist destinations. Training or recognition programs should not be conducted in any foreign country AMCs must not sponsor or fund any training or recognition programs organized by the distributor. This is to reward their employees or sub-distributors. AMFI’s new guidelines are designed to prevent misuse of rewards. They aim to ensure fair practices within the mutual fund industry.
