SEBI made an announcement last week.

It said:

"Transparency in payment of commission to Mutual Fund distributors:

There shall be no Entry Load for the schemes, existing or new, of a Mutual Fund. The upfront commission to distributors shall be paid by the investor to the distributor directly. The distributors shall disclose the commission, trail or otherwise, received by them for different schemes/ mutual funds which they are distributing or advising the investors."

PersonalFN also has an announcement to make today.
"Good move, SEBI !
Congratulations, Mr. Bhave!"

Now to understand the implications:
Mutual Fund investors can REJOICE FOR 2 REASONS:

1. Payment of commission to your distributor who sells you a mutual fund can now be mutually decided by the investor and the distributor. Also there will be a transparent disclosure to the investor on the commission, trail and otherwise earned by the distributor.

2. You may receive unbiased advice now onwards.

What does Point # 1 mean?
Your distributor will now no longer receive 2.25% Entry Load every time you invest in a Mutual Fund. You have a say in what you would like to pay your distributor as commission when you purchase a mutual fund through him. Quality of research and advice will drive the fees you pay him.

The system currently works like this:

Mutual Fund Houses would speak to distributors.

"If you generate above Rs. X AUM in my funds, I will pay you an additional commission of Y%."

Distributors and mutual fund houses were very happy.

You as the investor may not have been aware of this at all.

Your distributor would probably recommend a fund to you because it earned him a high commission (up to 6% in some cases). There was no specific research that went into the recommendation. He earned his commission from the mutual fund house to sell you the fund and he was happy. These days will soon be GONE.

The mutual fund house can still pay your distributor an additional commission out of its own pocket, but your distributor no longer receives 2.25% Entry Load from you. He also no longer earns most of his money by way of Entry Load and churning your portfolio unnecessarily.

The system was murky and non-transparent, and the investors were recommended funds not in their own best interests, but the ones that earned the distributor the highest commission. Now you can find out what your distributor earned from your money.

Portfolio churning was rampant.

Every time your distributor recommended you sell one fund and buy another, you paid Entry Load on the fund you bought. Your distributor earned money every single time he made you churn your portfolio. And so recommendations came thick and fast, churning happened frequently, and most importantly, recommendations were biased towards higher commission paying funds.

Things can and probably will change now.

No longer will your distributor get away with making you buy and sell mutual funds on the pretext of timing the market. Now if you ask him, he will have to tell you exactly what he earns every time you make a mutual fund investment. Unethical churning can now become a thing of the past.

Bless SEBI for transparent disclosure!

And this brings us to Point # 2.

What does Point # 2 mean?

Earlier there was plenty of reason for your distributor to send an office boy to your house to pick up your forms and get your signatures. Every time you invested, your distributor made money. Now, your distributor will earn less money and has to disclose what he earns. His recommendations may have had an agenda behind them which suited him. Now he has to offer you real researched advice. He has to offer you unbiased advice. Or he could maintain his biased way of doing things, and maybe try to sell you a ULIP and earn a larger commission on this financial product.

Caution: The next time your distributor comes home and asks you to buy a ULIP, ask him how much commission he will earn if you buy this product. Watch his reaction!: The next time your distributor comes home and asks you to buy a ULIP, ask him how much commission he will earn if you buy this product. Watch his reaction!

Your distributors were earlier not neutral enough to give you true, honest, unbiased advice. They were focused on generating AUM for a specific fund or selling any other financial product that earned them the highest commission. They were focused on churning your portfolio to earn Entry Load again and again. What is your distributor going to do now once the SEBI rule is enacted?

We, at PersonalFN, can tell you what WE are going to do now.
We are going to carry on with Business As Usual.

Because our practice has always been to give honest and unbiased advice. We were and continue to be in the business of giving you the truth about investments. We make it simple and tell you what is good for you. Our focus has always been the client’s best interests. This will not change. For example, we at PersonalFN have never recommended ULIPs. Selling you a product so that we earn a high commission is not the right way of taking care of the investor.

If you want our advice, you pay a fee, and if you want to invest through us, you can. You will be assured of the right advice, and the right recommendations.

What are the services and what are their fees?
Here are our current offerings:

THE SERVICE	THE BENEFIT	THE FEE
FundSelect	Weekly research recommendations on mutual fund schemes	Rs. 2,200 (1 year); Rs. 4,000 (2 years)
FundSelect Plus	Ready made equity and debt portfolios, updated monthly	Rs. 8,500 (1 year); Rs. 13,500 (2 years)
Basic Financial Planning	-Take the first step towards achieving your financial goals -Get specific recommendations of where to invest for each goal	Rs. 5,000* (One Time fee)
Investment Planning	-Receive a Plan that will help you achieve your investment goal - Ensure that your current portfolio is brought in line with your risk-return profile -Receive PersonalFN recommendations and personalized service for 1 year	Rs. 10,000* (Limited Period fee)
Comprehensive Financial Planning	-Receive intensive financial planning that will enable you to invest in instruments to achieve all your Life Goals -Receive a Cash Flow to show you where you stand financially every year until retirement -Receive PersonalFN recommendations and personalized service for 1 year	Rs. 15,000* (Limited Period fee)
Fund of Funds	Want an expert to select equity mutual funds for you? Welcome to the Quantum PFN Equity Fund of Funds	NO LOAD

*Service tax is applicable on these services. Limited Period fee valid until July 31st, 2009.
FundSelect and FundSelect Plus are inclusive of Service Tax

You will get the right recommendations that will work in your best interests because these recommendations come from PersonalFN. We have been researching mutual funds, insurance and fixed income instruments since 1999. You can also avail of our financial planning services and help yourself plan to achieve your long term and short term financial goals with unbiased advice and recommendations.
 

• Our system is simple.
  Here are the services we offer you, these are the fees. These fees have ensured that we did not have to go to Mutual Fund houses and receive their additional commissions to recommend to you a fund that didn’t suit your requirements.

  Want someone to take care of your finances and give you honest, unbiased advice?
  Come to PersonalFN.
  We have been doing for years, what everybody else may have to start doing now, because SEBI enacts a new requirement.

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