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NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Regulatory, Governance and Ethical Aspects of Portfolio Managers

A PMS distributor is paid a trail fee by the portfolio manager. Which statement about distributor conduct under SEBI's PMS framework is correct?

The distributor must disclose to the client all commissions or fees received from the portfolio manager for distribution. This transparency exposes conflicts of interest. Guaranteeing returns, double charging without disclosure, or skipping certification because the client is wealthy are not permitted.

  1. AThe distributor may take upfront commission from the client in addition to the portfolio manager's payout, with no disclosure
  2. BThe distributor must disclose to the client all commissions or fees received from the portfolio manager for the distributionCorrect
  3. CThe distributor may guarantee a minimum return to induce clients to invest
  4. DThe distributor need not hold any NISM certification if the client is a high net worth individual

Explanation

Distributors must make transparent disclosure of the commission or remuneration they receive for distributing PMS, so that the client can judge conflict of interest. Guaranteeing returns is prohibited, and certification applies regardless of client wealth. Undisclosed double charging breaches the code.

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