Updated August 15, 2008

   The Ministry of Finance of the Russian Federation has published explanations of one of the most controversial issues in the retail segment of Russia’s pooled investments market. The agency permitted the managing companies’ agents for mutual funds’ sale to give their shareholders 2 NDFL certificates (individual income tax) by themselves. Until recently, only managers could do this, and that caused some inconveniences both to them, and to their clients.

   The Ministry of Finance’s explanations providing mediators for mutual funds’ sale with the right to give shareholders 2 NDFL certificates was posted on the official web site of the Russian National Managers League on August, 14. Now, the managing companies will transfer some part of their tax agents’ duties to the retail chains selling mutual funds. Until recently, in order to get a 2 NDFL certificate, a shareholder should have applied to a central office of a managing company regardless of his residence and a place of a share purchase. Now he can receive a certificate directly in a company selling mutual funds – a managing company’s chief executive has only to give its agent a power of attorney.

   The existent procedure of giving 2 NDFL certificates caused major inconveniences to a manager. "Earlier, a managing company’s chief executive had to sign all copies of certificates personally, and this procedure took much time, as within the last couple of years the sales of mutual funds grew many times, and the number of shareholders exceeded some hundred thousand", Troika Dialog vice-president Andrey Zvezdochkin says.

   The business of assets management was unprofitable because of high labor costs during certificates giving for a tax inspection. "The Russian managing companies were absolutely clumsy from the viewpoint of the common organization", KIT Fortis Investments chief executive Vladimir Kirillov marks. Thus, there was no practical and direct cooperation between a managing company and shareholders, as the agents preferred to cooperate with the company’s central office by mail. As a result, shareholders were bearing losses. "There were many cases when such certificates were lost during postage or the process took much time", the head of the project "The Chain for financial supermarkets" Evgeny Ochkovsky says. "And investors could not file tax returns in time because of that".

   Now the agents will become the full representatives of managing companies, experts mark. "After all, shareholders living in the regions prefer to address on their controversial issues the agents exactly instead of a managing company’s central office", the chief executive of Kapital managing company Vadim Soskov considers. The new regulation will also distribute the load between managers and agents that until recently has been mainly fixed to managers, although a revenue from mutual funds’ sale has been shared with agents equally. "Agents take all bonuses that sometimes reach 1%", Mr. Kirillov explains. "And a managing company takes 1% more as a reward, but it pays agents bonuses for keeping clients. So, an agent gets more, though he works less".

   The retail networks selling mutual funds are not against the additional load. "We prefer to give certificates by ourselves, than watch how managers do not send documents in time and it makes shareholders nervous", Mr. Ochkovsky says. Thus, he states that extension of agents’ duties does not imply a fee rise for their services.