Bose panel wants agency fees phased out to curb mis-selling

The high-powered Sumit Bose committee, set up by the finance ministry last year to recommend measures to curb mis-selling of financial products and rationalising distribution incentives, has called for a complete phase out of any upfront fees for agents.
"Any upfront commissions in any investment products and the investment portion of any bundled products skew seller behaviour and lead to mis-selling and churning, therefore these should be phased out completely," said the report that was submitted to the finance ministry last week.
The system of incentives should align the interest of the three parts of the market -- the manufacturer, the advisor/distributor and the customer, the report said.

When contacted Sumit Bose, who was the former finance secretary and who headed the panel, told PTI that "high upfront commissions lead to pushing of those products which get the agent higher fees, and this leads to mis-selling and therefore we called for phasing out of upfront commissions in investment products".
When asked about implementation of the recommendations, he said it is up to the government and the sectoral regulators to decide to implement in a in time-bound manner or reject the report.
The report, however, has suggested that upfront commissions for pure mortality products may continue since selling pure life cover is relatively difficult.

Also special incentives may be given to the distributors when they have to reach out to a specific consumer segment under any mandatory provision, for instance insurance cover in rural areas.

The report has also said for investment products, and investment portion of bundled products, commissions should move to an all trail model which should be either maintained at specific levels or should keep declining as the product matures.
When contacted, mutual fund houses said the matter has to be discussed by the industry body AMFI and then only they can take a view.
"As of now, we are adhering to the norms stipulated by AMFI as per which upfront commissions shouldn't exceed 1 per cent, while trail commission remains the same all through.

"Now as the Bose committee report is out, we will first wait for AMFI to deliberate on the recommendations to take a view," SBI MF managing director and chief executive Dinesh Khara said.