When the market regulator banned entry load on mutual funds, Paresh Kariya, an independent financial adviser (IFA) in Mumbai’s suburbs thought he would not be able to service small clients.
But, two months since the ban (applicable from August 1), Kariya sees little financial impact on his business. Technology has came to his rescue. It has not only helped him lower costs but also enabled him to make his business more service-oriented.
Kariya has taken his services online. He created a website, Aargus Advisors, where customers can log in to see the performance of their fund-related investments in one report. He sends regular newsletters and has even started making customised product brochures depending upon the client’s risk appetite. “All this has helped us manage with half the manpower,” said Kariya.
In the earlier regime, for equity funds, intermediaries used to receive a 2.25 per cent commission. Entry load in most debt funds was nil. Mutual funds also paid trail commissions to intermediaries for keeping clients invested in their funds.
Post the ban, mutual funds have customised upfront commissions. IFAs can now either opt for higher upfront fees and lower trail commission or vice versa. The minimum upfront fee is 0.5 per cent and can go up to 1-1.25 per cent.
Trail commissions, too, have seen a rise in the past two months. Mutual funds earlier paid 0.4-0.5 per cent commission every year. “This commission has been increased to 0.5–0.75 per cent post the ban on entry load,” said Kariya. This, combined with savings from use of technology, has reduced the impact of the entry load ban considerably.
Kariya has company. New Delhi-based Bajaj Capital, one of the oldest distributors in the country, has started a web-based service for IFAs that are part of its network. These are mostly agents that single-handedly run their business using the Bajaj Capital name. These IFAs have started shifting clients to this internet-based site that provides investors services like Aargus Advisors. Even Surat-based NJ Wealth Advisors is implementing a similar model.
“These agents give us 30 per cent of our business and we have to work on solutions that can help them save costs,” said Rajiv Bajaj, managing director of Bajaj Capital.
Without use of technology, said many IFAs and distributors, selling mutual funds would not have made sense. It’s not possible to ask clients for separate cheques every month if they opt for mutual funds via a systematic investment plan (SIP), they say. An IFA explains the math: If someone has a Rs 5,000 SIP and the IFA charges 2 per cent commission, it is not possible to knock at the client’s door every month for Rs 100.
“After the entry load ban, many IFAs have shifted their small clients online. This gives them time to personally service large clients,” said Vikaas Sachdeva, country head, business development, Bharti AXA Investment Managers. He adds that many IFAs are using mutual funds to acquire new customers and later cross-sell them other products.
Rajesh Krishnamoorthy, managing director at iFast Financial India, agrees. The company has witnessed a similar trend and launched a website that allows clients of IFAs to transact in funds of multiple companies online.
Mutual fund companies, on the other hand, have seen their margins shrink after the entry load ban. They had to pay intermediaries commission from their pocket. To save costs, fund houses are also working on technology platforms to enable online transactions at every distributor’s website.
Intermediaries say Reliance Mutual Fund and Birla Sun Life Mutual Fund are about to implement this.
