The rules that get distributors in trouble: AMFI code, commission disclosure, EUIN, mis-selling

Most distributors who lose their ARN did not set out to cheat anyone. They cut a corner that felt harmless, repeated it, and a complaint found it. The AMFI Code of Conduct is short, and the rules that matter are shorter still. Learn these and you will never need to learn the rest the hard way.

Disclose your commission

You must tell every client what you earn, in rupee terms and as a rate, from each scheme you recommend. In practice this means keeping a scheme-wise commission table and showing it before the client invests. You must also disclose if a different scheme pays you more. The client's CAS from CAMS or KFintech shows the commission paid on their holdings, so hiding it does not even work.

Disclosure is also where the Regular versus Direct conversation lives. A Regular Plan's expense ratio includes your trail; a Direct Plan's does not, so it is cheaper. Say so plainly. Then say what you do for the difference: onboarding, suitability, reviews, keeping them invested in a fall. Clients who hear this from you trust you. Clients who find it out later from a friend do not.

That is the number to put in front of the client. Rates differ by scheme and are capped by SEBI's TER slabs, so quote the actual figure from the AMC table, not this illustration.

Record the EUIN. Every time.

Every transaction you advise on must carry your EUIN. If it is an execution-only order where you gave no advice, the form must say so explicitly. A missing EUIN is treated by AMCs as a defect: the transaction can be processed, but commission is withheld, and repeated omissions are reported to AMFI. On platforms the EUIN is captured once at login; still, confirm it appears on the confirmation the client receives.

Things you simply cannot do

• Promise or imply a return. Not "around 12%", not "historically 15%", not "safe like an FD".
• Pass back any part of your commission to a client as a rebate, gift or cashback. This is prohibited by SEBI and AMFI, and it is how most "deals" start.
• Churn. Moving a client out of one scheme and into another mainly to earn fresh commission or an exit load for the AMC is mis-selling, even if the client agreed.
• Handle client money. No cash, no transfers to your account, no cheques in your name.
• Recommend without suitability. A Very High riskometer scheme for a one-year goal, or a scheme the client did not understand, is mis-selling regardless of how it performed.
• Advertise with superlatives. "Best fund", "top performer", "zero risk" are all breaches.

How enforcement actually works

A client complaint goes to the AMC, then to AMFI, and in serious cases to SEBI through SCORES. AMFI can issue a warning, suspend the ARN for a period, or cancel it. During a suspension trail commission stops on the entire book, not just on the client who complained. Cancellation ends the practice. There is also the civil route: a client who was mis-sold can seek their losses back.

The common thread in cases that go badly is the absence of a record. A distributor who can produce a one-page suitability note, a commission disclosure and a written confirmation from the client usually survives a complaint. One who cannot, usually does not.

The rules are not there to make selling harder. They exist so that a client who trusts a stranger with their savings can be sure the stranger is accountable. Make that your selling point.