 "Get money's worth from your distributor")
Every person who has an ARN number must follow Amfi's code of conduct. “This requires distributors to do risk profiling and suggest appropriate products. If they are not doing this, paying a commission is not worthwhile. But if the distributor is providing advice regarding fund selection, or is providing a digital platform that makes investing convenient, the fee is justified,” says Srikanth Meenakshi, founder and chief operating officer, Fundsindia.com. Investors should also expect agents to provide services such as help with KYC, changing bank account or nominee, exiting investments, etc.
Investors should not go overboard with expectations either. Says Aashish P Sommaiyaa, managing director and chief executive officer (CEO), Motilal Oswal AMC: “The regulatory guidelines are clear that distributors can't do financial planning. They can only help with product selection and give advice incidental to the product.” In a regular equity fund, the distributor receives an average of 0.75 per cent of investment as commission (less in debt funds).
Two models exist now. In the traditional one, the distributor's commission is embedded within the fund's expense ratio. In the new model the investor invests in a direct plan, with lower expense ratio, and pays separately for advice. In the first model, distributors have an incentive to sell higher-commission products. The second model addresses this concern. When deciding on the model to adopt, remember that fund selection is only one part of the job. “Regular portfolio review, rebalancing and exiting underperforming funds are other important tasks,” says Manoj Nagpal, CEO, Outlook Asia Capital.
In case you are not satisfied with the traditional model, a couple of other options have become available: Robo advisory platforms and the Securities and Exchange Board of India’s registered investment advisors (Sebi-RIAs). A robo advisory platform is cost effective. “It leverages on automation of transaction and advisory and passes the cost benefits to investors,” says Sharad Singh, CEO, Invezta.
Just because cost is low, the quality of advice may not necessarily be poor. “We have been offering sophisticated analytics to institutional investors and are offering the same to retail investors now,” says Singh. The platform charges Rs 948 for only transacting, and Rs 1,308 for transacting and robo advice (asset allocation, portfolio construction, and rebalancing). Singh says those who can't afford the fee of a human wealth manager stand to benefit from robo advisory. These platforms are, however, young.
Investors not comfortable sharing their financial details over the Internet may prefer a Sebi RIA. "As the portfolio size grows, investors want customised advice. They may also need hand holding. They should then want to shift to a Sebi RIA," says Deepesh Raghaw, Sebi RIA and founder, personal finance.in. Those who want comprehensive financial advice, including insurance, taxation, should also turn to an RIA. Make sure the RIA doesn't get you to invest in regular plans. The number of Sebi RIAs is limited, hence, access is bound to be an issue beyond metros. A Sebi RIA's charge could be Rs 5,000-40,000, depending on the complexity of the task.
