3.8 Regulation of Marketing and Distribution: Distributor Categories, Collection Points and Agency Structure
Key Takeaways
Before 1998, a unit trust salesperson only had to meet the internal requirements of the UTMC that appointed them.
FIMM issued guidelines for registering Institutional Unit Trust Advisers (IUTA) in February 2000 and for Corporate Unit Trust Advisers (CUTA) in October 2007.
Employees at collection points need not be registered Consultants but must not offer, market or sell schemes, complete order forms or sign as a Consultant.
A UTMC or PRS Provider agency unit may have no more than four tiers and no more than 50 persons, and agents are not allowed to recruit.
A CUTA or CPRA agency unit may have no more than three tiers and 36 persons, and the CUTA or CPRA must be able to distribute schemes of at least two issuers.
How Distribution Regulation Developed
| Period | Development |
|---|---|
| Before 1998 | A UTS salesperson only had to meet the internal requirements of the appointing UTMC |
| From 1998 | The SC and FIMM introduced registration and examination; successful candidates became registered UTS Consultants |
| February 2000 | FIMM's Guidelines for Registration of Institutional Unit Trust Advisers (IUTA) let banks and dealers in securities, with large branch networks and strong supervision, distribute UTS |
| October 2007 | Guidelines for Registration of Corporate Unit Trust Advisers (CUTA) extended access to financial planners licensed by the SC |
| Later | IUTA, CUTA, IPRA and CPRA registration guidelines consolidated into the FIMM Consolidated Rules (FCR) |
| With PRS | IPRA and CPRA channels regulated to ensure good conduct and reasonable advice to individuals and corporations |
Employees of IUTAs and CUTAs who qualify as UTS Consultants may sell units of any UTMC that has a distribution agreement with their firm. Everyone entering the industry must meet minimum educational standards and pass an examination; only registered persons may market and distribute UTS.
Categories of Distributors and Consultants
| Category of Distributor | Category of Consultant |
|---|---|
| UTMC and PRS Provider | Tied agents selling only that provider's schemes; employees of the provider |
| IUTA and IPRA (institutional advisers such as banks) | Tied agents of an IUTA/IPRA that is also a UTMC/PRS Provider; employees or independent individuals of the IUTA/IPRA |
| CUTA and CPRA (corporate advisers) | Employees or independent individuals; generally individuals licensed by the SC for financial planning |
Distribution Points vs Collection Points
| Feature | Distribution point | Collection point |
|---|---|---|
| Purpose | Premises used to market and distribute schemes | Premises used only to collect documents from investors |
| Staffing rule | Appendices 2-A and 2-B of the FCR: a Consultant must be stationed there at all times | Staff need not be registered Consultants |
| What staff may do | Advise and sell | Collect documents only: must not offer, sell, market or distribute schemes, prepare or complete an order form, or sign as a Consultant |
The Agency Structure
Only Scheme Providers, their authorised channels and registered Consultants may market and distribute schemes. A person wanting to register applies through a Distributor, which is responsible for checking eligibility and the accuracy of the application.
The SC limits the size and structure of agencies so that each agent is properly supervised. The standard agency structure (an agency "unit") is:
| Distributor | Maximum tiers | Maximum unit size | Who counts as the "supervisor" |
|---|---|---|---|
| UTMC / PRS Provider (independent, non-salaried agents) | Four: group agency manager, agency manager, agency supervisor, agent | 50 persons | Any of the upper three tiers and their direct downlines |
| IUTA / IPRA that is also a UTMC / PRS Provider | Four (same as above) | 50 persons | Upper three tiers |
| Other IUTA / IPRA holding a CMSL | Three: agency manager, agency supervisor, agent | 36 persons | Upper two tiers |
| CUTA / CPRA | Three: agency manager, agency supervisor, agent | 36 persons | Upper two tiers |
Rules common to every structure:
- An agent is not allowed to conduct recruitment.
- Distributors are strongly encouraged to keep as few tiers as possible in investors' interests.
Extra conditions for CUTAs and CPRAs:
- they must at all times have a distribution or sub-distribution arrangement letting them market schemes of at least two issuers (including an operator); and
- they may not enter sub-distribution arrangements with IUTAs that are financial institutions listed as "registered persons" under item (1)(g), Part 1 of Schedule 4 of the CMSA.
Applying the Rules
Scenario: A UTMC agency manager wants to build a team of 60 under one agency supervisor, using a five-level hierarchy and letting top-performing agents recruit friends.
- Five levels breach the four-tier maximum for UTMC agencies.
- 60 people in one unit breach the 50-person limit.
- Agents may not recruit; recruitment is for the supervisory tiers.
Why the Limits Exist
The study guide links the limits directly to investor protection: the SC wants every agent to be properly supervised. Long chains of uplines make supervision weak and can turn an agency into a recruitment pyramid, where income depends more on signing up new agents than on serving investors. Capping the number of tiers and the size of each unit, and banning recruitment by agents, keeps supervisors close to the people actually advising clients.
| Number to remember | Applies to |
|---|---|
| 4 tiers / 50 persons | UTMC and PRS Provider agencies (and IUTA/IPRA that are also Scheme Providers) |
| 3 tiers / 36 persons | Other IUTA/IPRA CMSL holders, and CUTA/CPRA |
| At least 2 issuers | Distribution arrangements a CUTA/CPRA must have |
Scenario: A bank branch has a counter where staff receive completed forms. Staff there are not registered. They may collect documents, but if a customer asks which fund to buy, they must refer the customer to a registered Consultant: they cannot advise, fill in the order form or sign as a Consultant.
What is the maximum number of persons allowed in an agency unit of a UTMC under the FIMM Consolidated Rules?
20
36
50
100
Which activity is permitted for an unregistered employee at an IUTA collection point?
Explaining the risks of a fund to a walk-in customer
Completing the order form on the customer's behalf
Collecting the customer's completed documents
Signing the application as the servicing Consultant
In which year did FIMM introduce guidelines allowing Corporate Unit Trust Advisers to distribute unit trusts?
2000
1998
2012
2007
Sections you finish are checked off in the contents.