What is a professional fee you pay a bank for buying mutual funds?
February 19, 2010
After the ban on entry load for mutual funds (MFs) by the market regulator, banking channels have become the dominant route for fund companies to distribute MFs, as small distributors are finding it unprofitable to sell these funds.
While banning entry loads, the Securities and Exchange Board of India (SEBI) has asked distributors to disclose the upfront commission to be paid by the investor to the distributor. But banks don’t exactly share SEBI’s idea of such disclosure.
Axis Bank has charged its customers a fee for subscribing to a new fund offer of Axis Mutual Fund. It does not call it advisory fee. It did not disclose it upfront. It calls it a ‘professional’ fee and has charged it to the customer’s account.
“The Professional Fees for Axis Equity Fund NFO was Rs250 as decided by the bank as distributor. All the customers investing in the Axis Equity Fund NFO through Axis Bank were briefed on the services offered and consequent professional fees to be charged by the bank at the time of investment,” said Axis Bank to Moneylife.
However, the customer’s awareness of any such deduction by the bank is open to question (unless a customer himself inquires), and should the charges be deducted as ‘professional fees’?
Clearly, while SEBI has declared that commission paid by the investor directly to the distributor should be transparent, banks have other ideas.
“Banks don’t specify that charges are deducted for sale of mutual funds. The bank should send a debit note specifying the type of professional services they have rendered to the customer. A doctor or a lawyer can charge a professional fee but how can a bank charge professional fee?” asked an independent financial advisor (IFA).
“Some banks take a mandate (signature) from the client, for instance power of attorney (POA). Everything is in the hands of the bank itself. All banks which sell MFs charge some or the other amount from customers like 0.5% of the total AUM (Assets Under Management),” said a chief executive officer (CEO) of an investment advisory firm.
“Upfront commission should not be charged under professional fees. SEBI in its guidelines has stated that banks can charge an advisory fee if the customer knows about it and hands over a cheque to the bank. It should not be deducted directly from a customer’s account. If you take a onetime mandate, it is just like a blank cheque. The customer does not read all the minute details mentioned in a form. If a mandate is taken by the bank, they can deduct any type of charges from the customer’s account,” added the source.
HDFC Bank charges Rs200 as upfront commission for selling a fund. Presently, a majority of banks have tied up with asset management companies (AMCs) to sell funds. Some banks have also appointed a mutual fund advisor who is certified by AMFI. ICICI Bank and HSBC officials could not be contacted for comments and our email queries remain unanswered. — Moneylife Digital Team