SEBI in a circular dated March 18, 2016 among other things had directed that the Consolidated Account Statement being sent by Mutual Funds to investors every six months, must in a separate column disclose the total commission paid to the distributor and must simultaneously indicate the Total Expense Ratio (TER) of the Regular and Direct plans of the fund. This simple circular has spread panic within the distribution community.

In a cleverly worded update dated September 20, 2016, while continuing to insist upon commission disclosure and TER disclosure of REGULAR plans, SEBI has exempted reporting TER of the same fund under DIRECT plans thus making it more difficult for customers to compare REGULAR versus DIRECT plans. This is a sad and clear case of kicking the can down the road and bowing to special interest groups (distributors and their hand in glove partners - the mutual funds).

SEBI uses the term 'distributor' – which is the only regulator recognized term for those who sell financial products for a commission. The term 'distributor' is cloaked by market participants in a variety of fancy sounding jargon such as Wealth Manager, Independent Financial Planner (IFP), Financial Adviser, etc., none of which are officially recognized by the regulator. Why is the distributor community so concerned about commission disclosure and the comparison of the TER between DIRECT and REGULAR plans? The answer may lie in the fact that the distributor community is worried that now that commissions are made visible, would they be able to justify the fat commissions they are collecting at the cost of their investors? I wonder when similar disclosures on commission structures are going to be made compulsory by the Insurance Regulation and Development Authority (IRDA) in insurance products – something sorely required.

My dear client, I strongly urge you to read your Consolidated Account Statements of mutual funds which will come to you within a month or so and scrutinize the 'commission' column. In most accounts advised by Aroha Capital Pvt. Ltd. Investment Advisers, there would be no commission since we predominantly advise investments only in the lower cost DIRECT plans. For a few of you due to the need to use the ICICI Direct platform some liquid fund investments are made through the platform and the platform being a distributor will be collecting a commission. I intend to wipe even this out once I am able to register all of you onto a new mutual fund platform called mfutility, which enables investments in DIRECT plans. This is work in progress and you will hear from me in this regard shortly.