Mutual funds are sold by various people:

a) the fund houses themselves, directly

b) banks / brokerage houses

c) National Distributors (ND)s as they are called

d) newspapers

e) websites which look like news peddlers

f) websites which clearly look like sales websites

g) technology enablers like Paytm, Websites like Amazon (soon I hear)

The common man who buys does not even know sometimes whether they are reading a news item or a mutual fund sales pitch. The distinction in television and websites is not clear at all. However you do not buy it on television, but it is even seamlessly sold on the website. So the most dangerous sales is the one which happens online in websites which look like a news website. So most of the famous ‘news’ websites are today registered with SEBI and sell mutual funds to you and receive a commission! At the same time when you are reading an article saying that you should be buying it direct from the fund house, they could be selling it to you for a fee.

Imagine a big commercial website which peddles news writes an article on “why you should invest in direct schemes”. The investor reads this article, he is very impressed and clicks a button to invest. Unknown to him it takes him to a website owned by the newspaper (and having an innocuous name) and invests! Hello, this is NOT DIRECT, that newspaper (aka news website).

So how do IFA get cheated?

The Manufacturers are normally indifferent to which channel a sales comes from. So a young IFA assiduously builds up a client’s portfolio – from Rs. 5000 sip to a portfolio of Rs. 2 crores. Then one day a bank or a ND move in and transfer the assets to their ARN. I have seen more IFA fall a victim to this than banks losing aum to the Ifa. Maybe they do not care, but the truth is normally it is the IFA who is the victim. How do they do it?

a) Sir it is good for you if all your investments are in one place.

b) you can access your whole portfolio whenever you want

c) if you are in a new city and need to use our office for meeting somebody, you can

d) we will give you …..

e) most importantly most of the clients do not even know that they have changed the ARN.

How can the IFA stop this from happening?

a) tell the client how he earns money.

b) tell the client that any investment should be done only after telling him (not asking!!)

c) get the fund houses to inform you about the change request (you can’t they  will hide under the ‘sebi does not require it’

Really there is nothing you can do if your client does not even understand that the ARN is being changed. I know many IFA who have suffered ..please comment if you are an IFA who has suffered and what you did to prevent further losses.

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  1. The best part starts only after the transfer. The Aum if transferred fro A IFA to B broker. Neither A earns nor B unless the B broker does some switches or redemption reinvest. If it’s mere transfer of assets both brokers doesn’t earn but the AMC continues to earn 😇

  2. I believe new broker gets the trail commission (whenever it is due if switched or redemption reinvestment is not done)

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