Even as the ministry has initiated efforts to lift the spirits of distributors of the Rs 6.6-trillion mutual fund industry, a major section of the distributors feel left out of the process. Rival distributor groups from different parts of the country are crying foul over being kept out of the consultative process initiated by the finance ministry. On Monday, ministry officials met fund chief executive officers (CEOs), officials from industry association AMFI and a Mumbai-based distributor body to discuss the measures needed to “revitalise the mutual fund industry”.
While a Mumbai-based distributor association named Foundation of Independent Financial Advisors (FIFA) has made its representation on behalf of distributors, others say it’s a fringe group representing less than 100 advisors, predominantly from Mumbai and the western region of the country, and it does not represent the views of grassroot level distributors.
“The idea was to address the concerns of small distributors who take mutual fund products to investors in smaller towns and rural areas. But suggestions are asked from a body whose members are largely situated in metros. We have written to the ministry questioning the logic of this representation. We have also submitted our suggestions,” K Ramesh Bhat, CEO, IFA Galaxy, said.
| WHICH ROAD TO TAKE? |
FIFA SUGGESTIONS:
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DFDA SUGGESTIONS:
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IFA GALAXY SUGGESTIONS:
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Chennai-based distributor association IFA Galaxy is not alone. DFDA, a Delhi-based association has also written to the finance ministry submitting its own set of suggestions. These associations also do not support the main suggestion of FIFA, which is the restoration of entry load. In a sixteen page document released on Monday, FIFA listed the “restoration of entry load” as its first suggestion. “For retail penetration and geographic expansion, restoration of entry load is essential,” the document said.
However, Bhat of IFA Galaxy said bringing back entry load will be a disruptive move and will not help anyone. “We will not agree to entry load. Investors and distributors have all adjusted themselves to the new model. (Bringing back means) it will all be complicated once again.”
Bhat wants the regulators to work on making investing a simple process for investors. “It should be as simple as operating a bank account, if not simpler,” he said.
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DFDA also felt any increase in upfront commissions will only increase churn. “Any increase in the upfront brokerage payout will lead to higher churning of the same assets leading to zero growth in assets under management (AUM). The ideal situation would be that the trail fees should increase (from the first year till the assets last with the asset management company).”
The Delhi-based forum sought to grade the distributors according to the profile of customers and areas they service. “The cost of acquiring a new retail or HNI client is the same. But a retail IFA has to do 10-20 times more volumes to survive in the business. Distributor grading (should) be introduced on the basis of practices that lead to longevity of assets of small investors and also turn out to be profitable for investors. The better grade should be rewarded with better payouts,” DFDA said.
Other suggestions of FIFA include setting up a self-regulatory organisation of distributors, extension of the Rajiv Gandhi scheme to mutual funds, abolition of Know Your Customer (KYC) compliance for PAN and bank account holders.
Presenting the income scenario of distributors before and after the ban on entry load in 2009, FIFA said, distributors lost up to 33 per cent of revenues in the post-ban period. FIFA claims its members control Rs 10,000 crore of AUM.
After the meeting on Monday, the ministry said it will take certain measures in the immediate future without elaborating on specifics. “The immediate plan includes steps that may have to be taken to energise the distribution network and to provide greater flexibility to asset management companies to manage the total expense ratio,” a ministry release after the meeting said.