Advisories to benefit from MF entry load removal

ET 23/6/09

MUMBAI: With SEBI removing the entry load from mutual fund unit buying, wealth advisory firms find reason to rejoice such a decision foreseeing huge market potential for them. Going forward, such a decision is expected to give “big push” to the wealth management services which is still at a nascent stage in India.

Wealth managers believe that this move may lead to a dominant emergence of advisory services considering the virtual end of distribution services in mutual fund schemes. They are of the opinion that investors will not desist from seeking investment advice and portfolio services. If they deliver quality advisory backed by strong independent research, retail investors would not hesitate to accept wealth management services at a nominal cost of 1-2 per cent advisory fees. After all, selection among 300-400 equity schemes is no joke!

Earlier, major distributors were selling MF schemes charging around 2.25 per cent entry load – which was deducted from investors’ money. There were cases of large scale “push selling” in a pass back system wherein an independent financial advisor shares a part of his commission with the investor by pushing a particular mutual fund scheme, which may not be worth buying, according to the wealth managers.

“The mantle of power is going to shift from product pushers into a holistic financial planning model wherein any wealth advisory service with a strong research background is bound to witness triple digit growth, provided MF industry grows by 30 per cent CAGR,” said Kaustav Majumdar, Dy. CEO & Executive Director, SMC Wealth Management Services.

“SEBI’s new regulation has opened a new dimension for all such people who take up financial planning services,” added SMC Wealth’s Majumdar.

The entry load payment also acted as a deterrent for wealth services, which were hesitant to disclose its advisory charges to the investors at the first instance. Earlier, investors who already paid the entry load for mutual fund schemes were averse of paying any advisory fees. Wealth services used to take a beating on account of this.

Expecting a double the growth from its current level in one year’s time, Vikas Agnihotri, CEO, Religare Macquarie Wealth Management, said, “Banking on Religare’s network we plan to reach out investors in tier II cities. Indian investors, who were earlier subjected to push selling, are ready to pay for good quality advisory including value research and recommendations.”

“SEBI’s decision is both in the interest of investors and wealth managers. It leads to transparency with no involvement of hidden cost like load structure. Under this scenario, advisory is the only way forward,” mentioned Rajesh Saluja, CEO and Managing Partner, ASK Wealth Advisors; who feels, wealth advisory firms need to concentrate in educating the customer about the benefits of advisory services.

According to market grape vine, the situation is enticing enough to float new wealth management advisories.

One thought on “Advisories to benefit from MF entry load removal

  1. Dear Sir,

    Not even 10% retail investors are going to pay you the wealth management fees. Educating the investor wonder full idea but you can not sell a Pure Term Insurance Plan even to a CA or MBA Finance. No body is ready to accept the idea of not getting any thing back from LI Company. By the time you will educate the investor you will be too old to earn any thing for yourself.

    In India common man even avoids paying consultancy to doctors, and prefers self medication at the first instance. In case of investors I have come across such clients who take my advice and invest just Rs.50000/- through me and then invest large amount through distributors who pay more incentives than me.

    I am in the field for last so many yrs at Delhi NCR and have not come across the clients who are willing to pay even for depositing the LIC premium for policies not sold by me.

    AMFI is working hand in gloves with SEBI. We IFA have done a wonderful job for promoting AMCs and now AMFI wants to do away with IFAs

    Like

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