The most maligned person in the financial service space is the distributor. It is he/ she who provides the last link between the financial product manufacturers and the end investor.
Let us describe the typical distributor: He earns about Rs. 2-3 lakhs a year (a decent MBA would not EVEN consider looking at such a small starting package) – assuming that he has put in about 5 years of experience. He is hoping to earn more money as his clients get richer, as his number of clients increase, and the markets do well. So for a person who started off in 2007 or 8, he is doing terribly badly – thanks to the equity market.
His source of income includes a 1% commission on products of the post office. Ha, sorry it used to include the commission on products of the post office. This has hence been stopped. Imagine an agent who started this business in 1990 and has built up a client base of 800 customers. Assuming each customer would put in Rs. 300,000 in PPF (3-4 accounts in a house is a norm) – it means the agent was collecting Rs. 24 crores in PPF (not an unheard of sum). The agent was getting Rs. 24 lakhs per year. The catch? Well he had to part with a portion to the client, a big part to the post office people who ‘helped’ him, and spend something on his own employees, rent, etc. You could assume that he would make about Rs. 7L net after expenses. Hey but now that is GONE. But the service remains. I spoke to my agent today, and he said ‘I will send somebody, pick up the form, bank it…….ALL FOR FREE.
Then of course is th TRAIL FEE…from mutual funds, where they make a lot of money, right?
Last week one Mutual fund distributor was telling me about 2 mutual fund provisions (I am not sure whether this has been done by SEBI or by the manufacturer’s club a.k.a AMFI). Both the provisions are so stupid and so biased that I would have laughed if it was not hurtful.
The first provision is that the agent cannot get a commission if he himself is the INVESTOR. Now this is an amazing provision which my limited brain power does not understand at all. Which means if I am a sensible sized arn holder and have say Rs. 1 crore to park in a fund house, I CANNOT GET ANY commission on this transaction.
So what do I do? Simple call up a friend of similar size and put the money in his code. You scratch my back, I scratch yours.
The second provision is even worse. In case (for whatever reasons –there is no relaxation here) the distributor is NOT in a position to write his ARN renewal exam, he loses his RIGHT TO SELL MUTUAL FUNDS. He also loses his right to all the trail commissions that he has built over the years. Assuming he started this business in 1995 and in 2014 he has a trail commission of Rs. 100,000 a month. He loses it. Simple. He gets zilch UNLESS he passes the exam or attends a Refresher course.
Is there a solution? Yes of course. If the stakes are big enough create a private limited company and start doing business there….
MORAL of the story: Both these provisions have not BENEFITTED THE agent in any way. The beneficiary is the fund house.
Moral 2: Rules are made by powerful people, the IFA is still weak….very weak….
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