Changing agents: who gets trail commission?

Changing agents: who gets trail commission?

The market regulator, Securities and Exchange Board of India (Sebi), has made investors happy by scrapping the need to get a no objection certificate (NOC) before changing agents. However, it has left the agents in a fix—they have no idea who will get the trail commission.

When you invest in mutual funds (MFs) through your agent, he gets a trail commission, also known as loyalty bonus, for as long as you stay invested in the fund. Typically it ranges from 40-50 basis points a year.

However, in case an investor switches agents, it is not clear yet which one would get the commission—the new one or the old one. MFs are yet to take a firm stand on this issue.

Some agents feel that old agents should continue to get the trail commission even if investors shift their investments to another agent. Their argument is that some agents may unscrupulously drive away existing business of small agents.

Not all agree though. Manish Gadhvi, head (Mumbai operations), NJ India Invest Pvt. Ltd, one of India’s largest retail MF distributors, says: “An agent gets rewarded in terms of initial commission for bringing in new customers. The trail commission is meant to retain the customer. If the agent is unable to do so for reasons, such as lack of service, then he does not deserve the trail commission. What is the sanctity of the no-NOC rule then?"

A distributor source said a leading fund house has decided to pay the trail commission to old agents, a move that has not gone down too well with some agents. Agents have demanded a written communication from different fund houses and they are expected soon.