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

Which statement about the 'Know Your Client' and conflict-of-interest obligations of a PMS distributor is most consistent with the SEBI framework for portfolio managers?

A PMS distributor must disclose all commissions received from the portfolio manager and avoid mis-selling. Recommendations must suit the client rather than the distributor's earnings, and neither client wealth nor a signed agreement removes the disclosure duty or permits guaranteed returns.

  1. AA distributor may recommend a PMS solely because it pays the highest trail commission
  2. BA distributor must disclose to the client all commissions received from the portfolio manager and avoid mis-sellingCorrect
  3. CA distributor need not disclose commission if the client is a high net worth individual
  4. DA distributor may guarantee minimum returns if the client has signed the agreement

Explanation

Distributors must act in the client's interest, disclose commissions and conflicts and not mis-sell. Recommending only for commission, exempting HNIs from disclosure, or guaranteeing returns all breach the code of conduct and the rule against assured returns.

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