In a survey of over 373 mutual fund (MF) agents across India conducted by Cafemutual, an independent website launched on 1 December that gives news and information on the MF industry, 95% of agents said they were in favour of being regulated.
At present, distributors are not regulated, though the Association of Mutual Funds of India (Amfi), the industry’s trade body, has laid down best practices guidelines in this regard. Though capital market regulator, the Securities and Exchange Board of India (Sebi), had issued draft guidelines for investment advisers in August 2007 and had invited feedback from the public, it did not issue the final guidelines.
When asked whom they would want to be regulated by, 38% named Amfi and 27.1% Sebi. Says Prem Khatri, founder and CEO, Cafemutual: “Very simply put, distributors want certain norms to apply to them. They feel this will add credibility to their profession.”
But how are they coping up after the ban on entry loads? About 42% of IFAs (independent financial advisers) said they have started charging fees to their clients. This is in keeping with Sebi’s advice at the time of banning entry loads. However, 36% of the IFAs say that they continue to do business as usual (they don’t charge fees and rely purely on trail and low upfront fees that they earn from MFs).
Distributors may be slowly but steadily shifting to the fee-based model, but most who responded to this survey feel that MFs did not support them enough when Sebi banned loads. Khatri claims he wishes he could have prodded more on this, but conceded that this may be because most MFs (except perhaps most notably UTI chairman U.K. Sinha) were largely silent in the media about the impact on distributors. “Broadly, the survey indicates that a majority of distributors have moved on and accepted the reality and tweaked their business models to ensure their survival,” adds Khatri.
As a proof of this, perhaps, the survey also quizzed distributors on whether they still find distribution an attractive career option: 47% said the IFA career is “rewarding and satisfying”; 16% said it was “a hopeless career”.
To a question (with a fixed number of options) of what IFAs are most likely to do in the next one year, a majority, 29.6%, of the IFAs said they would enroll for a course for financial planning or wealth management and 16.8% claimed they’ll upgrade their office systems.
Another interesting finding was that 74.2% of the respondents do not expect the new Sebi chairman to reverse the ban on entry loads. Note that during the time this survey was being conducted, news of U.K. Sinha being elected the new Sebi chairman broke, though his name was doing the rounds for a long time. As 2010 comes to a close—a good 17 months after Sebi banned entry loads—perhaps this is telltale sign that MFs and agents have finally moved on.