Feel free to switch agents for better service, Sebi bans NOCs

Feel free to switch agents for better service, Sebi bans NOCs
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First Published: Mon, Dec 14 2009. 09 08 PM IST

Updated: Mon, Dec 14 2009. 09 08 PM IST
Did you feel tied down to your mutual fund (MF) agent despite getting bad or no service, just because you needed a “no objection certificate” (NOC) from him if you shifted your business to another agent? Removing this restrictive practice, the capital market regulator, the Securities and Exchange Board of India (Sebi), issued a circular on 11 December that releases you from the tyranny of the NOC.
The industry lobby body, the Association of Mutual Funds of India (Amfi), had introduced the need for an NOC in 2002, saying rich investors were being lured to change agents. However, this caused heartburn among investors who were dissatisfied with their distributors and wanted to shift to a new one. The existing distributors would make it tough for the investors by simply not issuing them an NOC to do so.
Although, in 2007 Amfi had withdrawn the clause requiring an NOC for changing distributors, funds have continued to insist on the certificates. The reason for this is not difficult to see. A strong distributor hold on the asset management companies (AMCs) is probably the cause of this practice. Fund houses are loath to upset large distributors who “own” investors. Further, since Amfi is merely a trade body and not a regulator, it was not binding on fund houses to follow Amfi’s advice. And most of them did not.
Many financial planners have been frustrated at this lack of flexibility and have been asking the regulator to unlock investors. Srikanth Meenakshi, director, Fundsindia.com, a new Chennai-based online mutual funds platform, says: “Sebi’s latest move is a very good one as a lot of applications of our new clients, requesting a shift from their old distributors to our online platform, have been pending. Now, these applications will move faster.”
The regulator has also said that AMCs have to ensure they have all investor documentation from distributors to shift the centre of control.
At present, some large distributors such as banks, which route mutual fund investments through their wealth management or private banking channels or some online portals, retain their clients’ documents, such as the “Know Your Customer” forms.
Many large agents also require their clients to sign a power of attorney to be able to transact on their behalf by simply making a phone call. Sebi now mandates that AMCs have to keep a copy of such authorizations.
The market regulator has also said that mutual fund distributors should not be paid commissions till they ensure compliance with these new norms.
n.subramanian@livemint.com
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First Published: Mon, Dec 14 2009. 09 08 PM IST