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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 receives a commission from the portfolio manager for bringing a client. Which of the following correctly describes the disclosure expected of the distributor under the SEBI framework?

The distributor must disclose to the client the commission or remuneration received from the portfolio manager. Transparency on conflicts of interest is required regardless of who pays, and there is no threshold below which disclosure can be skipped.

  1. ADisclosure of commission is needed only if it exceeds 1% of the corpus
  2. BThe distributor need not disclose commission since the portfolio manager pays it
  3. CThe distributor must disclose to the client the commission or remuneration received from the portfolio managerCorrect
  4. DCommission is disclosed only to SEBI, not to the client

Explanation

Distributors must act transparently and disclose to the client all the commissions or other benefits they receive for the distribution of PMS. There is no 1% threshold, and non-disclosure because the manager pays it would be a conflict-of-interest lapse. Disclosure is owed to the client, not merely to the regulator.

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