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Business News/ Opinion / From junkets to knowledge

From junkets to knowledge

We are seeing a big push towards 'right sales' and investors are responding by using the systematic investment plan vehicle to rupee cost average their investments


Rolf Dobelli is the author of the best-seller The Art of Thinking Clearly. The book is a guide to how not to fall prey to making mistakes we are wired to make. Dobelli’s book is the result of a personal quest to better manage his money.

As he read more, he hit upon a much larger field of academic work that pinned down the mistakes we make due to the way the brain has been wired through evolution. The hunter-gatherer instinct still lurks in a very different world, he says.

Carl Richards runs and is in the business of simplifying complicated financial ideas. Author of two books around the theme of getting people to stop doing dumb things with their money, he is a columnist, corporate trainer and speaker. Known as the Sketch Guy, Richards does a regular column for The New York Times.

Both Richards and Dobelli are in the business of turning the contents of academics papers in behavioural economics into easy-to-use mantras. I met them in separate meetings in Delhi last week and it was fascinating to see how well they translate concepts from academic papers into easy-to-use-and-remember stories.

Why are they in India? Dobelli is here at the invitation of IDFC Mutual Fund (IDFC Asset Management Co. Ltd) and Richards is at the invitation of Axis Mutual Fund (Axis Asset Management Co. Ltd) and a fintech startup, Sqrrl. Both were invited to meet with, educate and train bankers, financial advisers, planners and key clients in Delhi and Mumbai.

Richards was fascinated by the similarity in issues and questions that the intermediation industry grapples with no matter which part of the world they work in. And investors, he said, have the same key question: how do I trust a financial intermediary?

Dobelli said he was amazed by the effort that IDFC Mutual Fund was making on investor and intermediary education; he had not seen this in Europe, he said. Banks in Europe, he said to me, would benefit from such consumer-focused initiatives.

But what’s so great about two foreigners coming to India to talk? The takeaway for me was that we are seeing a move towards genuine education of the intermediation industry rather than just taking them on foreign junkets on an all-expenses paid holiday.

A sales-push industry has resulted in volume-linked incentives in the financial sector rather than right-sales incentives. In fact, during the same week, the insurance regulator, the Insurance Regulatory and Development Authority of India (Irdai), fined HDFC Standard Life Insurance Co. Ltd for hiding foreign junket costs as ‘skill building’. You can read the final order here:

This is not to say that junkets are not happening in the mutual fund industry. They are, but the shift in spending in some parts of the industry do point to a greater focus on skill building and education.

Why is India seeing a push by some mutual funds and a boom in fintech companies in the mutual fund distribution space? I believe that the regulator has worked to a plan and has gradually taken the monkey out of the product. What’s the monkey? Upfront commissions drive sales across the world.

There is a lot of research that pins the blame of poor sales practices on sales incentives in finance. The Securities and Exchange Board of India (Sebi) has consistently moved over time to a market model that removes this incentive from the front and is now pushing the market towards deciding who is an adviser and who is a distributor.

The collapsing of all costs into one expense ratio also makes it easier for third-party analysts and do-it-yourself investors to compare products on costs.

Predictions for the demise of the industry have followed each reform measure carried out by successive Sebi chairmen, but all of them have proved to be wrong.

We are seeing a big push towards ‘right sales’ and investors are responding by using the systematic investment plan (SIP) vehicle to rupee cost average their investments. The SIP book is now almost Rs4,000 crore a month and growing.

The lessons are clear—do the right thing by the investors and they will finally come. The spending on knowledge building, rather than on foreign tourism, in this space is yet another sign that the industry is maturing. This is good news for everybody: the investor, the manufacturer and the distributor.

It is also good for the economy as Indian household money finally comes to the market. The next step will be to get this money to stay for the long term.

End note: A non-money realisation that both Dobelli and Richards had to share was this: you cannot compartmentalise your life. So, if you get more reflective about your money, it has a positive impact on the rest of your life as well. Makes for a better overall life.

Monika Halan works in the area of consumer protection in finance. She is consulting editor Mint, consultant NIPFP, and on the board of FPSB India. She can be reached at

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Updated: 18 Jan 2017, 02:59 AM IST
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