In the meeting that the finance ministry called in July 2012 which included chiefs of the top 10 asset management companies (AMCs), the head of the Association of Mutual Funds of India (Amfi) and the whole-time member of the Securities and Exchange Board of India (Sebi), there was one member in that meeting whose name not many may have heard. He is Dhruv Mehta, chairman, Foundation of Independent Financial Advisors (FIFA), a distributor association that is not even a year old. Call it a coup or sassy public relations, Mehta did what many IFAs over the years had only dreamt of—he managed to get invited by the finance ministry and had it as his audience. But FIFA is just the beginning.

There is strength in numbers. Mutual fund (MF) distributors, till now a dispersed lot, are recognizing the benefit of unity. After Sebi abolished entry loads in 2009 and in view of the changing distribution landscape, IFAs across the country got jolted out of their solitary existence and sought out one another. Reduced income forced some to leave the business, others changed their business models to charge the customer directly.

Shyamal Banerjee/Mint

Is this some sort of a trade union? Are IFAs of these associations better off than their colleagues elsewhere? Why do they even exist?

At the crux of their well-articulated objectives lies the burning desire to be heard. Although IFAs bring in a significant chunk of MF inflows into equity funds, Sebi, Amfi and the Indian MF industry was almost oblivious to their needs and concerns. Although top IFAs had some access to the power corridor, it was banks and national distributors that commanded much of the industry’s attention, thanks to their organized structure. The IFA community was fragmented and had no formal representation as such.

Further, IFAs saw that the regulations were formed keeping in mind just banks and national distributors. In an earlier interview to Mint Money, Mehta said that although many bank-based distributors used to indulge in churning (a corrupt practice by MF distributors to nudge investors to buy and sell MF units frequently to earn higher commission), Sebi abolished entry loads. Most IFAs, claimed Mehta, do not indulge in churning; but their opinion was never considered. As a result, many IFAs—Mehta, and also Amfi, claim—have quit selling funds.

Apart from lending a voice, most of these associations simultaneously focus on working towards the upliftment of IFAs. They conduct training programs and seminars where they call speakers from AMCs to give lectures on issues such as how to adjust to the entry load ban, how to sell MFs, how to approach the customer and so on. Last week, at a seminar in Hubli, Karnataka, Kamfa had a training session for IFAs on the basics of taxation. Next day it held a training session on Microsoft Excel in Belgaum. Kamfa’s secretary K.T. Suresh tells me that not many IFAs are proficient with Excel and such trainings help. With chief guests, including author Chetan Bhagat and James Norris, managing director, Vanguard International, one of the world’s largest fund houses, at such events, they also liven up things.

IFAs too show support. L&T Investment Management Ltd’s CEO Kailash Kulkarni tells me that at a recent seminar he attended, organized by ASK Circle in Bhubaneswar in Orissa, about 500 IFAs turned up, from 60 different cities over the weekend. “On a Sunday afternoon, after having lunch, if we have 500 IFAs paying attention, it says something," says Kulkarni. IFA associations regularly hold seminars in their state; most of them hold their annual conferences in large hotels where all their members converge, network with one another, meet AMC officials and, in a subtle way, present a show of strength.

AMCs are happy to oblige. They sponsor many events; in return they get to address and some advertising space. IFA associations also get better access to AMCs to share their operational grievances; IFAs had to earlier contact their regional offices.

How about bargaining—a united force compelling the AMCs to pay a better commission? All of the above associations categorically denied that they talk about commissions to fund houses. Some other IFA associations, AMCs say, do ask for a better bargain. As a result, upfront commissions in equity funds paid to some of IFAs have gone up to about 1%, up from about 0.50% earlier. But such bargaining is an exception; most associations avoid it.

All this noise and hard work seems to be bearing fruit, but gradually. Apart from Mehta’s Delhi trip, IFA Galaxy met Sebi in Mumbai in May 2012 and presented its views on issues faced by the MF industry. Interestingly, one of the things it recommended was a higher incentive structure for penetration of funds in tier II and III cities; last month, Sebi allowed funds to charge 30 basis points extra for funds where at least 30% of total inflows came from “beyond top 15 cities".

Forming associations to protect IFAs’ interest is fine as long as they don’t drive hard for bargains. Getting their voice across is important though and Sebi should ideally engage them too since it anyways engages larger distributors such as banks because IFAs are the only distributor segment that can truly touch the retail segment. Your bank’s relationship manager typically changes once a year, but a good IFA sees your family grow over time. With close to 37% of the total inflows coming from IFAs (as per figures provided by Computer Age Management Services; one of India’s largest registrar and transfer agents) and 44% of total net inflows coming from IFAs, they want to be heard and counted.

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