Becoming an IFA: a good profession?
One hears that there are upwards of 3 million IFAs selling some financial product or the other. My take on this is – not more than 10,000 are in it by choice. Most of them would happily take up a job in the financial services sector. Some of them will not get a job because of age and some will not get a job because they are not qualified to get a job.
I frankly do not think this is a great profession to be in. The retail customer will not pay anywhere near what will be a living wage for an independent planner. So most of the planners will come under some roof or brand – and again the customer will lose because of sales pressures. Of course the customer who wants services free, will have to pay the price for it, let him pay.
The contrary view to the above is – It will make a great business after 8-10 years by which time all the people who rebate, people who do not understand and their likes would be all wiped out / have retired. This will mean there will be a huge demand for decent IFAs – and the demand can only go up.
Of course the greatest challenge for the IFA is not getting a client, but it is to fight against the fund management industry – when they play dirty.
Take an example – if an I F A has introduced a client to a mutual fund. The client applies for a PIN number to use the net for doing transactions. If the client invests IN THE SAME FOLIO but forgets to insert the I F A’s code, the I F A does not get any commission on that. However if the client removes money, the trail on the removed money is not paid to the IFA. The dirty tricks department of all the mutual funds works full time – even the best funds play it.
Is it an uneven battle? So far maybe. However once there are some more ETFs and the higher end customer goes away, and the banks start concentrating on broking (far, far, far more profitable than selling mutual fund schemes) the battle will become more even.
Watch this space…interesting times are upon us..:)
Want to know what is IFA galaxy’s take on this! IFA galaxy now has upwards of 2500 members – Congrats, good show.
sukumaran
I am amused by what I read. The mutual fund / life insurance agent is hated. But every article says ‘they earn hefty commissions’. They also say ‘anybody can become an agent’. Now if all of us became agents and made all the hefty commissions we would all be rich. What am I missing out? Can anybody explain please?
Manoj
Hi Sukumaran, if you have been reading so many articles related to this, then it is really strange that you are still groping for answers! None of of the articles even remotely mentioned details about commissions! I have myself read so many times in this blog itself that in ulips there are cases of upto 40% charges in 1st year deducted by the company (and surey large part goes to agent). About MFs, the commissions were much less, 2-3% types and those too mired into regulatory hassels now. So you have all the data available to you to make a good call on this subject.
Asoke
Manoj either you really do not know or you are trying to perpetuate the myth. This is perhaps the first blog (jagoinvestor kept saying that mutual fund commissions are low) which showed how the commissions in mutual funds are much higher over a long period of time – say 6-8 years. That is because the asset management charges of mutual funds are normally (2.5) vs 1.25 in many life insurance companies. I think Sukumaran is saying if it is so attractive why everybody should not become an agent AND KEEP ALL THE COMMISSION AT HOME, I think. Clearly if you have a long term view ulip is better, maybe you should wait till Sep 2010….and then buy.
Param Iyer
If client used PIN to transact on Net directly, why should the IFA get a commission? Did not understand your stance on this…
If IFA executed the transaction on behalf of client, they should have entered the code correctly. If client executed it based on advise from IFA, the IFA would/should have charged for advice separately.
Vishwanath
I have the unfair advantage of knowing some of the best advisors in the field. One person charges Rs. 25,000 a year (every year) for portfolio advisory OF EQUITY MF PORTFOLIO alone. He charges 2.5% of the aum for equity advisory – and does not care where you execute. He trusts only 5-6 fund managers with whom he interacts regularly. Chooses clients, chooses funds, chooses portfolio construction tools. Out sources (client pays a fee to the service provider) for making a will, pre-nuptial agreements, …etc. Works for him :). His son is not entering the financial services industry.
Param Iyer
“2.5% of the aum for equity advisory” I assume is on top of the actual expenses/taxes etc. – this is the sureshot way to convert a crorepati to a lakhpati…
Vishwanath
Correct Param this joker has only Rs. 900 crores for managing. Most of his clients have been with him for the past 25+ years that he has been in business. Handles only about 25-30 families under this scheme. All others are his customers (paying fees) for financial planning and mutual funds. Not bad correct? Stopped taking new clients in 2002. Personal networth should be in the region of Rs. 50- 75 crores. I F A….the bottom 10,000 IFAs would together have this networth I guess.