‘Role of distributors is critical in handling investor emotions’
‘Role of distributors is critical in handling investor emotions’
Oct 19, 2021
Oct 19, 2021
Neil Borate
Neil Borate
Dhruv Mehta, chairman, Foundation of Independent Financial Advisors (Fifa), speaks to Mint about the wave of consolidation in mutual fund (MF) distribution and the role of distributors as MF transactions become increasingly available free of cost. Edited excerpts:
Can you tell us a bit about Fifa and what it does?
Fifa is an association of mutual fund distributors and advisers set up about 10-12 years ago. We are an association representing over 2,700 individual mutual fund distributors. We started as an association with two basic objectives: one was to have knowledge-sharing among our networks so as to bring better practices and ensure favourable outcomes for our investors, and the second was to create a common voice for the individual mutual fund distribution community, so as to proactively share regulations that come. We are focused on individual distributors, and one has to be aware that distribution in India is done across three broad channels—banking, national distributors and individuals.
Starting in 2018, Sebi had set certain total expense ratio (TER) caps, and also made certain changes on distribution; for example, getting rid of upfront commissions. Following that, there has been a wave of mergers and consolidations among independent financial advisers (IFAs). Taking a bird’s eye view, do you see this trend continuing? Do you see this as a direct result of commissions declining?
The trend towards consolidation, I don’t think is being driven by the cap on TERs. I think it is more being driven by the emerging environment. In that, as an individual distributor, what is becoming more apparent is that you need to have both—the breadth and depth of the knowledge. Financial markets have become so dynamic that new asset classes are appearing. And therefore, there is a sense for individuals to come together and pool their knowledge to gain an understanding of the market. Secondly, even in terms of how to do your practice, with the digitization that has happened, how do you serve your customers better, which again is very dynamic. The way technology is changing, it’s affecting business models. Again, when you look at these, the requirement for the breadth of knowledge and the effect of technology, for an individual distributor, it makes sense to collaborate with the like-minded.
CAMS and KFintech have launched a free website called MF Central for MF services and eventually transaction requests. This execution was seen as the primary job of a distributor. How does that role change, going forward?
I don’t see the role changing. Primarily, the role of a distributor is to take new investors into the mutual fund. The whole shift of household savings to productive financial assets has a long way to go. Real wealth is created by people who don’t get swayed by fear and greed, and I think that, to handle the investor emotions, that is the very critical role that any distributor plays. It is a whole conversation that is required during investing; especially in times when there is an economic crisis, or a political crisis, or external events with a shake-up. So, while service is an important element, I don’t think that was the key role that a distributor was playing. Each family requires somebody to service them on not just the paper filling part, but the emotional part, understanding and knowledge.
Turning finally to the question of nomenclature, Sebi has said that mutual fund distributors cannot use the term IFAs, or financial advisers. Given that a significant part of your membership consists of distributors, are you considering changing the name of Fifa, or are there any other thoughts on this?Looking at that option, we have not made a final decision. I think Sebi’s regulations directly affect the individual distributor, but I don’t really think this affects us directly as an association.
Dhruv Mehta, chairman, Foundation of Independent Financial Advisors (Fifa), speaks to Mint about the wave of consolidation in mutual fund (MF) distribution and the role of distributors as MF transactions become increasingly available free of cost. Edited excerpts:
Can you tell us a bit about Fifa and what it does?
Fifa is an association of mutual fund distributors and advisers set up about 10-12 years ago. We are an association representing over 2,700 individual mutual fund distributors. We started as an association with two basic objectives: one was to have knowledge-sharing among our networks so as to bring better practices and ensure favourable outcomes for our investors, and the second was to create a common voice for the individual mutual fund distribution community, so as to proactively share regulations that come. We are focused on individual distributors, and one has to be aware that distribution in India is done across three broad channels—banking, national distributors and individuals.
Starting in 2018, Sebi had set certain total expense ratio (TER) caps, and also made certain changes on distribution; for example, getting rid of upfront commissions. Following that, there has been a wave of mergers and consolidations among independent financial advisers (IFAs). Taking a bird’s eye view, do you see this trend continuing? Do you see this as a direct result of commissions declining?
The trend towards consolidation, I don’t think is being driven by the cap on TERs. I think it is more being driven by the emerging environment. In that, as an individual distributor, what is becoming more apparent is that you need to have both—the breadth and depth of the knowledge. Financial markets have become so dynamic that new asset classes are appearing. And therefore, there is a sense for individuals to come together and pool their knowledge to gain an understanding of the market. Secondly, even in terms of how to do your practice, with the digitization that has happened, how do you serve your customers better, which again is very dynamic. The way technology is changing, it’s affecting business models. Again, when you look at these, the requirement for the breadth of knowledge and the effect of technology, for an individual distributor, it makes sense to collaborate with the like-minded.
CAMS and KFintech have launched a free website called MF Central for MF services and eventually transaction requests. This execution was seen as the primary job of a distributor. How does that role change, going forward?
I don’t see the role changing. Primarily, the role of a distributor is to take new investors into the mutual fund. The whole shift of household savings to productive financial assets has a long way to go. Real wealth is created by people who don’t get swayed by fear and greed, and I think that, to handle the investor emotions, that is the very critical role that any distributor plays. It is a whole conversation that is required during investing; especially in times when there is an economic crisis, or a political crisis, or external events with a shake-up. So, while service is an important element, I don’t think that was the key role that a distributor was playing. Each family requires somebody to service them on not just the paper filling part, but the emotional part, understanding and knowledge.
Turning finally to the question of nomenclature, Sebi has said that mutual fund distributors cannot use the term IFAs, or financial advisers. Given that a significant part of your membership consists of distributors, are you considering changing the name of Fifa, or are there any other thoughts on this?Looking at that option, we have not made a final decision. I think Sebi’s regulations directly affect the individual distributor, but I don’t really think this affects us directly as an association.
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Sapient Wealth 2024 All Rights Reserved. Designed by Bricx
Achieve ambitious financial goals with a strategic investment roadmap tailored for you & your family.
Sapient Wealth 2024 All Rights Reserved. Designed by Bricx