I recently received the annual report of a financial services company. Like all financial services company this company also has an insurance business, a financial distribution company, a mutual fund, …the works.

A quick glance clearly shows that this company will NEVER make money in ANY of the abovementioned businesses during my life time. Surely over a period of time they will make rights issues, issue CCCPs, QIBs, write off losses from the reserves (so that they do not have a loss making year, dummy) …but sadly they will not earn any money. When I spoke to one of the senior functionaries he said (hey only RBI makes money all the others have to earn it…). However the grandness of the organisation, the top exec pay, esop, bonuses…nothing seems to be unhealthy!

On the abolishing of loads, at least one or two senior employees of mutual funds (each one has a KRA of visiting 20 IFAs a week) is worried about his EMI. His logic is if there are no IFAs….!! Surely the distribution chain will take a hit. What will happen to the MF industry is still being debated. One long time player in the fund business asked me a hitting question. Does it take 42 fund houses and 400 schemes to invest in 200 listed companies? Set me thinking…surely Srikant will answer this question…do not know if other IFAs are going to take up this question.

Many IFAs have organised themselves into organisations like faaida, ifa galaxy, orissa association of distributors, etc. but they are an almost insignificant part of a business which has to reinvent itself fast. Or perish. It reminds me of the textile industry in the 1970s in Mumbai! Dr. Datta Samant was just the facilitator for a funeral which had to happen.

Funnily if you analyse the Karvy / Cams data the big distributors get business from corporates – in some cases the payback (which other than the regulator everybody acknowledges) goes to some executive in the company. In family run companies the business is routed through somebody in the house who has passed AMFI. Many of the small distributors had learnt to live on trail commissions only – the upfront was anyway being rebated! The big national distributors were rebating the upfront commission to their own employees anyway – and the employees decided how much to rebate!

So who really loses? Really the small distributors for whom this was the main (only) source of income. All of them will sell ULIPs, those who sell index fund (were anyway living on trail) will continue to sell Index funds, and most mutual funds will pay 1 to 1.5% comission upfront to the distributors – so that they can continue to sell mutual funds at a lower margin!

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