The mutual fund industry (and the life insurance industry too) sell its products through banks and Independent financial agents. Sadly no mf or insurance company takes enough trouble to understand this animal called the IFA. So they are categorized on just one basis – the amount of assets that they gather. This is wrong and almost stupid. Let ME classify the IFA into different categories first:
- Simple service providers: agents who think that it is their job to fill up the form, get the client his Pan, his aadhar card, help him with the passport (if need be!), do the kyc (annually, thanks to our great regulator), fill up the mutual fund form…so this agent is incidentally in the investment business, because he is here to help the client to invest.
- Asset gatherers: He is happy adding to his assets and will give the client whatever asset he wants. So he started life as a post office agent, then did company fixed deposit and now he is doing mutual funds. Obviously he will not want to antagonize the client and therefore will give him the form for all the mutual funds and all the schemes. The returns that a client gets has to be the client’s responsibility, and the client has to be responsible for the selection. Once in a while he will suggest a different scheme but that could be driven by a Thailand trip or a Switzerland trip depending on what he is aiming for.
- Investment managers: Many Ifas think that it is their duty and job to decide on the client’s asset allocation, the portfolio management – how much in mid cap, large cap, flexi cap etc. Some of them even take responsibility to verify whether funds are true to label and ask fund managers ‘why they hold so much cash’. I am not sure that they are trained or experienced to do this, but if they have say Rs. 500 crores of AUM, the fund houses believe that they have inherited or got the expertise to talk about all that.
- Ego massaging both ways: Some IFA are today in the business simply because they have been in the business for a very long time. They have more aum than many mf schemes so they get a lot of respect. This respect is now like aura and hence the younger fund houses are all attention when they speak or visit. It is impossible for the fund houses not to treat them like Gods. So these Gods continue to be in business – and it is likely that their children will inherit the business and the asset gathering.
- Starters in the business: these are the kids in the business worried about the regulator’s odd ways. They are young, they are still dependent on the asset management companies for their revenues and are continuously wondering whom do they owe allegiance to – the customer or the asset management company!
- The ‘independent’ Registered Investment Advisor’ – he charges a fee from the client for the ‘services’ rendered like financial planning, documentation, etc. However since he has a RIA number the mutual funds know how much fund gathering he does and for which fund house. It is obvious that the amc cannot (should not) give them anything in return for suggesting their funds. Well, well, in theory doctors should not get anything for suggesting a particular medicine, right? Well, well.
- Needs based Sellers: When a client says “i need to invest for 9 years” they immediately suggest a particular scheme – a combo of debt and non debt schemes..and it is the client’s responsibility to articulate the need well.
Sadly mutual funds have no clue about which IFA of theirs is in which category. I am sure that there are more categories too..I am limited by my knowledge. So all the IFA are put in different boxes for ‘rewards’. So suddenly an animal hating IFA who did extremely well is told that he will reach the convention center sitting on an elephant. The person who came first of course came in a helicopter. In a convention where 100 people are ‘selected’ to be present (with family for the top 25, with spouse for the next 50) this is supposed to have an ‘aspiration’ effect. Sadly the guy who had to sit on the elephant said ‘I am a PETA activist and will not sit on an elephant’.
CXOs were suitably embarrassed. Lol.
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