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Portfolio management firms and AIFs are going digital, but at their own pace

Client onboarding in physical mode is much more complex for PMS firms than it is for AIFs
Client onboarding in physical mode is much more complex for PMS firms than it is for AIFs

Summary

  • Physical PMS and AIF applications can run into dozens of pages and require numerous signatures, but these industries have been slower to adopt digital processes than mutual-fund firms

The traditional, paper-heavy method of onboarding clients in the portfolio management services (PMS) industry and alternative investment funds (AIFs) is gradually becoming digitised, with Computer Age Management Services (CAMS), a major player, launching its own digital platform.

CAMS WealthServ recently announced it had signed up several PMS firms and AIFs since its launch in 2021. According to CAMS president and chief executive Anuj Kumar, CAMS WealthServ now works with about 140 AIFs and more than 20 PMS firms. It is now working on enabling non-financial services digitally, such as allowing investors to update details of their nominees, addresses, bank accounts and so on.

Investing in AIFs

According to a client-relations executive of an AIF, digital processes are removing the need for physical form-filling while enabling automatic population of  client details. Physical AIF applications can be as long as 40 pages. “In AIFs, the account opening can happen on the same day through the digital mode, while in physical mode it could take two to three days," she said.

As AIFs are pooled investments, with clients’ investments being held at the fund level, they prefer to use digital services of a registrar and transfer agent (RTA) such as CAMS, as the RTA also handles the process of issuing AIF units to clients and fund-accounting functions in some cases. “AIFs require significant and well-scoped RTA functions. That is why the acceptance [of digital] among AIFs has been on the higher side," said Kumar.

Investing through a PMS firm

Both AIF and PMS onboarding also requires agreements to be stamped. This is now possible on digital platforms through e-franking. “The stamp papers of respective states have already been procured and stored in the system," said Milan Ganatra, founder and chief executive at 1SilverBullet, a fintech platform that offers digital onboarding for PMS firms and AIFs. It is currently working with 85 PMS providers and around 20 AIFs.

Client onboarding in physical mode is much more complex for PMS firms than it is for AIFs. There are many more agreements and much more paperwork involved as PMS firms don’t have pooled accounts like AIFs. Each client’s portfolio is managed separately.

This means every PMS client needs to have a separate demat account and a power-of-attorney (POA) agreement with the PMS to allow it manage the account on the client’s behalf. Typically, a PMS document is 40 to 80 pages long.

“Once basic application details are given, a one-time password (OTP) is sent to the PAN-Aadhar-linked number. After entering the OTP, all the other details are automatically updated on the system. After that the client can select the fee structure, PMS strategy, investment amount, etc. Alink is sent to the linked email for video KYC (know your customer) formalities," explained Rajesh Patil, senior vice-president and head of operations & customer service, Abakkus Asset Manager.

“Once that is done, the asset management company proceeds with the application with authorised signatories and digital e-signing of the stamp paper. In the last leg, the application details are sent to the custodian, where the demat account of the client is held," he added.

There are six major players in the PMS industry that serve as custodians and offer demat services. These are ICICI Bank, Kotak Bank, HDFC Bank, Axis Bank, Edelweiss and Orbis.

“In digital mode, if the process starts at 10 am, the customer can receive the demat account number by 5.30 pm the same day. The physical application process takes 8-10 days," Patil said.

Digital adoption

Though digital processes are now available, AIF and PMS distributors haven’t adopted them as readily as mutual fund companies have. These distributors have said their clients still prefer physical applications because of the large sums of money involved. The minimum investment required to opt for a PMS is 50 lakh and the minimum investment required for an AIF is 1 crore.

“Earlier, signing the POA agreement required a wet signature. So distributors preferred the physical mode as one leg of the process had to be physical. Now, with this requirement gone, distributors may be more open to going fully digital. This could be a game-changer for the industry," said Prateek Pant, chief business officer at WhiteOak Capital Asset Management.

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